Michael Aguiar – SVP and CFO
Theravance, Inc. (THRX) Barclays 2013 Global Healthcare Conference Call March 14, 2013 10:15 AM ET
Hi, good morning everyone. So, our next presenting company is Theravance. And the presenting executive would be Michael Aguiar, SVP and CFO of the company.
So, with that, let me just turn the podium to Michael.
Well, thank you very much. Before I get started, I have a couple of quick administrative items I’d like to just cater out of the way first of course is to thank Barclays for providing this opportunity to come in and chat with you today. And then second to just to make sure you note our Safe Harbor statement. We’ll be making a number of forward-looking statements today some of which may or may not turn out to ultimately come to pass.
So, with that let’s go ahead and turn to Theravance now. Theravance is a company that was founded on certain insights into multivalency technology that came out of Harvard University. And that’s really one of our core competencies that we use in our strategy around building value in compounds all the way from discovery through commercialization.
In the strategy we really tend to focus on things that we do extremely well, things like the early stage discovery, early stage development work and then generally when we find compound where we’re moving into later stage development or commercialization, places where we either don’t have expertise or we think that partner could do a better job, we will then partner the compounds out.
And as you’ll notice, as we go through here, they will talk about partnering quite a bit, that is one of our simple tenants of what we do. This has resulted in a pipeline as a number of major late stage programs, in particular I spent a fair amount of time talking about our respiratory program today. This is clearly the area of highest level of investor focus, in particular I’ll focus on the ones that are partnered with GSK.
But in addition to rest of our programs, we have a very deep pipeline of internal programs, and in fact actually they have four Phase 2 studies underway with internally developed our product. I’ll be happy to chat with you about those if there is interest later on today but again generally that’s where we’re interested in principally focused around the respiratory program and that’s where I’ll spend the majority of our time today.
This results in a path in 2013 that could be potentially transformative for Theravance. If it turns out we’re successful in 2013, this could lead us on a path towards significant revenue growth and really transformation from a company in the research and development stage into significant opportunities in the commercialization side.
So, today we’ll focus our conversation around as I mentioned the later stage respiratory programs in collaboration with GSK, we’ll talk about some of the partnerships and in particular how those work into our overall strategy. I will spend a little bit of time talking about the earlier pipeline, again it doesn’t get probably as much attention as it deserves, and it will start quickly at the end about on our financial position which is quite strong today.
So, now turning to the respiratory programs. I think in terms of setting the stage for why respiratory are so important, it really helps to understand the market we’re in. Today we are addressing a market that has been growing in the high single digits over the last several years and it’s currently approaching approximately $20 billion on a global basis, this is a very, very large and growing market opportunity.
The market you see here really is compounds that have a long acting data agonist, and by with corticosteroid which is what you see on the top bar. And tiotropium which is a single-agent long acting muscarinic antagonist. And together these two markets really are addressing asthma and COPD treatment. And it’s this market that we’re going after would be describe around an entire suite of products.
Looking forward, we intend this – we expect this trend to continue probably to the next decade or so, the trend has been driven principally by increases in overall patient numbers, principally driven by COPD patients in the past, we expect that trend to continue. But also by new therapies, tiotropium would be an example and there where you saw significant growth coming out of tiotropium.
Looking forward there are going to be a large number of new therapeutic categories and new products coming into this market. So we think it’s pretty likely that you will continue to see overall growth in this segment as you look forward in the next decade or so.
One of the things to think about as you’re considering the respiratory category is what is the potential change in treatment paradigms looking forward? And there are couple of key messages that came out of ERS and in 2012 and I think it will help frame this discussion as well. Number one, was the overall importance of managing exacerbation. In particular there was a patient – paper presented there that noted that patients who have COPD once they experience and exacerbation do not return the same baseline lung function – they rather have a permanent step-down decline in the role of lung function.
As a result managing exacerbations we think is going to be an increasingly important need looking forward here. One of the things that potentially could be out there is with once a day therapies, that is the possibility as once a day medics who have a higher overall rate of compliance and twice a day medicine that are out there today, generally speaking higher race of compliance will lead better patient outcomes overall in this therapeutic category.
Second big trend that you’re seeing out there, there was some data presented in the ERS as well as additional data we presented last year particularly are Phase 3 data from our ANORO program is an increasing importance going forward of LAMA or long acting muscarinic antagonist containing resonance.
In particular when you have two bronco dilators that data has shown that they will have an increase in overall levels of bronco dilation of the ability of patients to breathe versus single bronco dilator medicines. In fact one of their larger compliance here today from patients who are in tiotropium is they still have trouble breathing and we think that these combination medicines will be pretty good opportunity to provide better therapy for patients.
And then the last big theme is coming is the importance of combination medicines and potentially even triple therapy. Overall, again I just mentioned, dual mechanisms that tend to have better bronco dilation opportunities in single mechanisms. And when you look at things like the potential for triple therapy, it is really – there are some very intriguing data has been generated recently particularly in COPD and asthma, where for example, an asthma (inaudible) data where the addition of tiotropium on top of a LABA and IPS combination resulted in an overall rate of exacerbations in the lower – as in the current standard of care.
So we think these three trends are going to be important as you look forward in particular when you are thinking about what potential therapeutic categories might be out there and how the overall GSK Theravance portfolio attended this.
So, now I’ll talk a little bit about the overall portfolio which I think is the most comprehensive portfolio that’s out there today for respiratory products. We have three big categories of medicines, they are single agent medicines, dual mechanism medicines as well as triple mechanism medicines. And we think that all three of these are going to have homes in various categories.
So, I’m going to use COPD as an example of how potentially a patient would progress through there – their treatment paradigm here just to give you an example of how we think about this. Today, COPD patient comes into their doctor and first they’re presenting with symptoms of COPD, it’s likely the patient would be prescribed to single-agent bronco dilator or something like tiotropium, tiotropium is probably the most frequently prescribed initial therapy for COPD today.
After a period of time, as the disease progresses, the single agent is no longer sufficient and they need to step up to a higher level of therapeutic benefit. Looking forward, probably the next step up in terms of therapeutic is a combination medicine with two brono dilators such as a LAMA and a LABA, long-acting muscarinic antagonist combined with a LABA, a long acting data agonist. We have a product in oral which completed a positive Phase 3 program last year is under the file in the US today for the treatment of COPD. We have a very good opportunity for that patient on that.
Importantly as we go through this category, a patient who was on either a single agent beta agonist or single agent muscarinic antagonist that was a GSK Theravance compound would be using a compound that was in the ELLIPTA device, that same device would be used for an oral. It is also used for the next step of the progression here is again, as the patient would continue to progress, potentially they would go to a point in time where they would have an exacerbation or the doctor is concerned about an exacerbation, at which point in time he would want a steroid on board to control his exacerbations.
At that point in time you would potentially treat the patient with either Relvar and Breo depending upon your geography, a combination of LABA and an in-haled corticosteroid again this would be delivered in the ELLIPTA device. And then I think it’s a very late stages, the patients getting to their end stage of their disease, they may need additional therapeutic benefit where a triple-mechanism, where you have two bronco dilators combined with a steroid might be the ultimate therapeutic choice.
We have two potential opportunities in triple therapy, one is the MABA combined with an in-haled corticosteroid MABA is our single agent both muscarinic antagonist and beta 2 agonist so we have dual pharmacology or potentially where you take all three of the components from Relvar and Breo and ANORO and combine them in a single device and we call that (inaudible) and again those would be delivered potentially in the ELLIPTA device. So a common device really is what anchors this platform all the way through. And at least today, there is no other company that has the breath of portfolio or the single device that anchors all of their various medicines.
We think this is an important differentiating point because again you’re not having to retrain patients, not retrain doctors as the patient goes from one therapy to another.
So with that as background, let’s go ahead and we’ll talk very briefly about each of the programs. I’ll start here with Relvar and Breo, again this is a combination of a LABA and in-haled corticosteroid. This has successfully competed Phase 3 in both asthma and COPD. It is under file in the United States for the treatment of COPD. I will spend a little bit of time talking about that. We had a panels that was scheduled for last week that had to be delayed due to weather concerns.
We do have PDUFA date of May 12, coming up on that. And it is under file in the EU for both Asthma and COPD. I was a potential for regulatory events to come to conclusion over there as well.
So, we’ll start with the US, again we had a panel scheduled for last week, it was postponed due to the weather in DC, we’re waiting to hear back from the FDA unfortunately I don’t have an update in terms of timing on this. I can assure you there is nobody in the room here who is more understating getting the panel going than I am, this is something we are very interested in having happened here and are waiting for the FDA to give us some additional guidance around timing on that. So, I would say, stay tuned as soon as we have an update we will communicate that out with the street. But again this is something that we’re looking forward to and are coming in with confidence in our overall dataset.
In Europe, here is the brand name of Relvar and Breo there. We’re looking at both asthma and COPD. The applications were filed last year. We do have a potential for our regulatory conclusion here this year in both indications. And I would say that the overall regulatory process is going generally in line with our expectations.
Turning now to ANORO, ANORO again is the combination of a long acting muscarinic antagonist combined with long acting beta agonist in the treatment of COPD. This program completed a positive Phase 3 program in 2012 in COPD where we had a total of five programs. We’re looking at two sickness safety and efficacy studies, two head to heads programs as well as a long-term safety study. The data support filings both again in the US and Europe. We filed in the US in December of last year and currently have a PDUFA date of December 18, 2013 for the US review. And given a filing here in January in Europe, it’s likely we’ll reach a regulatory conclusion in 2014 for ANORO.
And then finally, I’ll talk quickly here about MABA, and our potential triple therapies. MABA again is a single agent medicine that has both long-acting muscarinic antagonist and long acting beta agonist activities although in a single molecule. This is completed a positive Phase 2b study and we announced in Q4 last year that GSK intends to progress MABA into a Phase 3 mono-therapy study here in 2013. And we are largely on track to get that going here in the not to distant future. Again this is a potential treatment for COPD.
The second part of the announcement that we had was that – the combination of the MABA with in-haled corticosteroid, we began what we called Phase 3 enabling work here sometime in 2013. Really what this is, is pre-clinical work making sure that there are no toxic issues out there to deal with and if that it looks pretty good, you would progress that compound pretty quickly into Phase 3 as well.
And now we’ll provide triple therapy similar to the last compound we talked about which is UMEC, VI, FF which is all three of the individual components out of Relvar and Breo and ANORO delivered in a single device is the ELLIPTA device.
And why I point out is that we have two separate paths for our triple therapy as we think this is a pretty significant opportunity and we’re trying to ensure the highest probability of having a player here.
As of today, we’re not aware of anyone else who is coming down the development path with a triple combination like this, and as a result it has the potential to be quite unique in the market as well as to provide significant patient benefits.
So, overall, I think we’re feeling quite good about the positioning right now relative to where we are with the overall product portfolio, the data we generated to date and our prospects going forward here should be – should we be successful with the regulatory events coming up here.
So, as a quick review of the potential regulatory events in 2013 for Relvar and Breo, there will be a rescheduled panel coming up hopefully in the not too distant future here followed by PDUFA data, again the PDUFA date is May 12 of this year. And then there is also the potential for ENA action Relvar before the end of the year.
ANORO, again the submissions went in January for the EU and in December for the US which resulted in a PDUFA date. In 2013 in the US, December 18, and again the potential ENA action in 2014 for ANORO and then MABA again the big step there, initiation of Phase 3 later this year, as well as the initiation of the Phase 3 enabling work and the combination with the in-haled corticosteroid.
Turning now to global partnerships. As I mentioned during the opening, partnerships are an integral part of our overall strategy at Theravance. It helps us to manage our overall burn rates into focus on what we’ve had unique capabilities on while partnering with people we would have greater financial resources or unique capabilities in those other areas.
First of all, we’ll talk about the economics related to the GSK collaboration, I think that has been discussed a number of times, just a reminder under the LABA collaboration, there are two sets of royalties to think about. The first one is the royalty relates that are related to Relvar and Breo. They are 15% on the first $3 billion of annual sales every single year and then 5% for all sales above and beyond $3 billion on an annual basis.
Also under the LABA collaboration is ANORO, ANORO has a slightly different royalty structure, instead of being downwards it’s gearing upwards hearing. Royalty start at 6.5% each year, have a couple of steps up and then they top out at 10% for all revenues in excess $2.5 billion on an annual basis.
The ANORO royalties or the same royalties that the triple combination of EU, DI and FF would also have as well, so the 6.5% to 10% sizable, ANORO as well as the triple. If you missed, if I didn’t point out, while those are all cash flows coming into Theravance. There is a potential that we will be paying milestones to GSK to hear.
Underneath the agreement since GSK has paid for all of the development work, in the event of success we would owe GSK certain milestones, the grand total of potential payments to GSK is $220 million. And these milestones are divided by region of the world, they are divided by approval and launch, so we would relate them – that’s in the earliest case regulatory approval and launch so under a situation where it would be highly confident of having royalties coming in and it is divided up by product type. As a result there are more than 10 different pieces that the $220 million is divided into. On our last conference call we mentioned that there is a potential this year that we paid up to $140 million of the $220 million after GSK.
The other agreement we had is our strategic alliance, this is what covers our MABA compound. Again, it’s completely different royalty structure for the single agent MABA. Royalties are upward hearing, it starting 10% on an annual basis, top out at 20%. And this all happens in the first $3.5 billion of sales. So everything above and beyond $3.5 billion, the royalty rate is up to 7.5%, again that’s single agent to convert that to – the rates would be applicable to a combination of MABA and in-haled corticosteroid, both firing by 0.7, so 10% goes to 7 etcetera.
And the theory there, you would price higher if you have an additional medicine on board, so net to Theravance is probably very similar, dollar expectation per day but potentially a much larger product.
The other key collaborations we have today, our MERC for cardiovascular disease, this is a program that we have with them, it is in pre-clinical right now, we really have not announced the target on this but it is something that if it ultimately successful could be quite meaningful to Theravance.
We have another collaboration with Alfa Wasserman for the development of compounds for the treatment of Gastroparesis. This is particularly focused on compound 518 which is our (inaudible). You probably are aware there are not a lot of therapeutic option today. For the treatment of Gastroparesis, so I would put this as a high risk but very important program. All of this high risk the good news is Theravance is not paying for this program, it is entirely funded by Alfa Wasserman at this point.
And then finally, Rpharm, Rpharm is the largest pharmaceutical company in Russia today. They have our license, our antibiotic by that of for treatment of patients with complicated skins, it’s infections in Europe – excuse me in United States. And they’re going to be using this over in Russia.
As well as our compound behind that TD 1792, which is a heterodyne another treatment for resisting gram positive infections. So, again partnering is integral of what we do and is a core component of our overall strategy.
Briefly I’ll talk about our pipeline. Again this probably doesn’t get enough focus here with the tremendous amount of investor focus on our respiratory programs. In particular I’m going to talk about the four Phase 2 programs we have underway today.
The first one I’ll talk about, i.e. is under respiratory TD 4208, this is Theravance’s proprietary long-acting muscarinic antagonist that we’re developing in a nebulized format. We had positive Phase 2a data last year that has resulted in the initiation of Phase 2b program in 2013. So, we’re in Phase 2b, this is a nebulizer. This is another big potential segment somewhere in the 5% to 10% range of the overall COPD market today.
So importantly it does not overlap with our GSK collaboration as in area of a particular interest. That said, we will read out either later this year or early in 2014, roughly early right now so let’s get enrollment continues to progress on that.
Looking down the pipeline, the next compound to talk about under CNS and pain, TD 9855, this is a compound as a dual norepinephrine and serotonin reuptake inhibitor. We have Phase 2a programs underway. Now the first one is for treatment of ABHD, second is for the treatment of fibromyalgia. Really what we’re looking to do here is create a better medicine to some of the existing SNRI out there today that has a different overall balance, it’s more selective in ceratomin, so hopefully we’ll be able to avoid some of the ceratonergic side-effects of the existing medications.
Also it’s a very long half life, so it will be very stable in patients and would avoid some of the fluctuations in some of the patients seen throughout the day. And then finally particularly for the treatment of ADHD, if they’re non stimulants so it would not be a scheduled medicine. This is currently a Phase 2a again for treatment of ADHD and fibromyalgia we expect these trials to get out later this year or early in 2014.
And then finally, I spoke very briefly about (inaudible) and TD 5108 which is again in Phase 2a program for the treatment of Gastroparesis in combination with Alfa Wasserman, again this program should be bringing out later this year or early next year again depending upon enrollment.
Very unmet medical need today, there are very few options to patients with gastroparesis to have. And potentially we think that the risk benefit ratio would be something the FDA would look at favorable should we see favorable results from this study.
Finally, we’ll talk about the financial position overall. I think we’re feeling quite confident about our financial position. We ended 2012 with approximately $344 million in cash with our offerings earlier this year. The 10-year convertible notes, we added about another $250 million to that so we are coming into 2013 in a very strong financial position, particularly with the view that we could be paying up to and additional $140 million to GSK upon successful regulatory events related to our respiratory programs.
We’ve given guidance for expenses this year between $125 million and $135 million in total expenses. The way we provide guidance is total OpEx being G&A plus R&D excluding stock compensations and stock compensation on a cash expense. I would like to point out that this $120 million and $130 million obviously does not include $140 million for the payments to GSK so that is not included in that particular guidance.
So, finally now, looking at 2013 I think we’re really tied up for what could potentially be a very transformative year for us. If we are successful in 2013, we have the opportunities to use significant revenue growth looking forward as well as a very different overall view of what Theravance is.
Looking on the left side of the chart, that’s Theravance today, on the right side is what the potential future looks like, so today for example we have a single group products which is by data for the treatment of resisting gram positive infections. Tomorrow it tends from multiple improved products in multiple therapeutic areas in multiple regions of the world.
Today, we have only partnership revenues that’s related to the financial treatment, the accounting treatment of milestones that have been received to date. Looking forward tomorrow we expect significant revenue growth if we successfully get the respiratory programs approved resulted from product sales.
And then finally, the focus today as I have mentioned a number of times from an investor perspective, it’s really around the very late stage respiratory programs. I would hope to advance our internal programs to shift the focus to revenue generation and our other late stage programs.
So, in summary, I think Theravance is looking forward to 2013, quite a bit we have extremely important events coming up. The opportunity for a number of regulatory approvals and for the potentials of the transforming from a company that is looking primarily at the research and development side into a company focused on commercialization with GSK of a very large respiratory portfolio.
So, with that I’d like to thank you for your attention. And I believe we have a breakout session right after this. So thank you very much.
[No Q&A session for this event]
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