Mike Aguiar – SVP and CFO
Jessica Fye - JPMorgan
Theravance, Inc. (THRX) 32nd Annual JPMorgan Healthcare Conference Call January 16, 2014 1:00 PM ET
Jessica Fye - JPMorgan
All right. Good morning, everyone. My name is Jessica Fye. I am on the pharmaceuticals team at JPMorgan. Very excited to have Theravance presenting today. Just a quick reminder that the breakout is going to be down the hall in the Yorkshire Room after that -- after this.
And presenting for Theravance this morning is Mike Aguiar, the Company's Chief Financial Officer.
Well good morning, everyone and thank you to JPMorgan and Jessica for providing us the opportunity to come and chat with you today. Before we jump in and talk about Theravance [maybe] one quick administrative item. Talk about this as our safe harbor statement. As you are aware, we'll be making a number of forward-looking statements about the future of Theravance. Future is uncertain. Not all of the statements necessarily will be such that they come to pass. So again they may or may not occur.
With that -- with that being said, I would like to go ahead and turn now to Theravance; very exciting time. 2013 was a transformational year for the company. In particular, we had three product approvals that we were participating in this year; really a record year for the company, some exciting clinical data. I will cover all of that today and importantly we announced the intention to separate the company and the two companies. So those will be the real focus of the conversation today.
Looking forward into 2014, I think we are pretty excited about this continuing to go forward. The separation is going to be between two entities that have tremendous potential. I will talk about those in a fair amount today. In addition, we expect additional countries to be approved with our various respiratory products, additional rollouts of these products across the world and the opportunity to create significant shareholder value.
What is Theravance today? Theravance today is a company that's astounded based upon technology that came out of Harvard on a concept called multivalency, really is the idea of creating small molecules attached with more than one point on a particular receptor.
Since that time, we've developed a very broad product portfolio. It is highlighted today by a couple of programs that are in partnership with GSK in particular, RELVAR ELLIPTA, which is a combination of a long-acting beta agonist, combined with an inhaled corticosteroid for the treatment of asthma and/or COPD. I will spend a fair amount of time talking about that today. This is one of the programs that was approved last year and is going into a very large market.
The second program that we'll talk about a fair amount today is ANORO ELLIPTA. This is a brand new class of once-a-day medicine that was recently approved in the United States for the treatment of COPD combining two bronchodilators, a long-acting beta antagonist as well as a long-acting muscarinic antagonist to give for the treatment of COPD. It was approved here in December, December 18, to be specific of last year and we have a plan to launch that product during the first quarter of this year.
I will -- it's currently under review in Europe and Japan and again our hopes are that we are successful in those countries as well and then we have additional countries being approved and rolled out through the rest of the year.
In addition to two programs that probably captured 95% of investor interest today, we do have a deep pipeline of internally developed programs. I will talk about those a little bit at the end, one in particular VIBATIV, which is our gram-positive antibiotic for the treatment of resistant gram-positive infections, was approved last year in the United States for the treatment of nosocomial pneumonia.
This was a very important approval, because it enabled us to reintroduce the product into the U.S. market after being pulled off by our partner or our prior partner Astellas Pharma, so now physicians have another treatment option for patients suffering from these severe infections.
Most recent financial communication, we had $595 million approximately of cash in the bank. This was as of the end of the third quarter, so the company is coming into 2014 on a very strong financial footing.
Now, I want to spend a little bit of time talking about the separation. This is a very, very exciting time for the company. Early last year, we made an announcement that the intention is to separate Theravance into two publicly traded companies. On the left hand side of the chart, Theravance Royalty Management Company; Theravance Royalty Management Company is the existing Theravance Corporation, and we will leave in Theravance Royalty Management Company the economic rights associated with RELVAR, BREO, again this is the combination of the long-acting beta agonist in inhaled corticosteroid that is approved today.
ANORO ELLIPTA, again the long-acting muscarinic antagonist, long-acting beta agonist, which was recently approved in the United States as well as VI monotherapy, VI is the single agent, long-acting beta-agonist that is included in both of these products. There will be a very small staffing associated with this, something probably in the neighbourhood of 10 people to 15 people and an associated very small expense profile.
The other company is really gathering everything else that is Theravance today, so this will get the operations of the company, the systems of the company, the vast majority of the employees of the company, the entire pipeline, as well as a couple key respiratory programs.
So the key programs that we left there are MABA and MABA/ICS, so MABA is a single agent that's both a muscarinic-antagonist and a Beta2 agonist. It is currently in development. We are looking at it for the treatment of COPD today either as monotherapy so by itself, or potentially in combination with inhaled corticosteroid, which will provide triple pharmacology.
This is partnered with GSK and is being developed by GSK along with the next program down, which is UMEC VI/FF. UMEC VI/FF are the three individual agents from either BREO or ANORO, and the object is to combine them into one single device, so you would have again the opportunity for triple therapy in both of these programs.
So, all of this is a portion of us going to Biopharma in addition to the internal pipeline that we have developed internally at Theravance. This included VIBATIV, our antibiotic, which is being marketed today in the United States, TD-4208, which is a Theravance long-acting muscarinic antagonist that we are developing in a nebulised format for the treatment of COPD, recently completed Phase IIb. We plan to advance that forward into a larger Phase IIb later this year.
TD-1211, this a peripheral Mu opioid antagonist for the treatment of opioid-induced constipation. That program right now is currently on hold pending some further regulatory discussions and an upcoming advisory panel on this class of compounds, and then finally TD-9855, this is a dual norepinephrine serotonin reuptake inhibitor, that's currently in development for fibromyalgia as potentially part of a broader pain indication.
Let me just take a moment here and talk about the royalty management side. I think this is a very exciting business, excuse me, opportunity. What's so unique about this entity here and really sort of the fundamental basis for why we did this separation was, as you think about these royalties coming in, the opportunity to pull a lot of the spend away had two impacts on this company. Number one, dramatically increasing profitability; number two, by removing the development risk you should decrease the overall cost of capital, both of which would be a positive for market valuation or a net present value on this.
Now looking forward this entity, I see three potential strategies to dramatically increase the overall value of this should we be successful with those. Number one is the proper financial structuring of the company. Today, the company from a financial perspective is really more similar to what you'll see in a development-stage company.
However, as you pull out the development risk away, it potentially could support significant additional leverage, so you would want to work on the debt-to-equity ratio and then potentially look at monetizing some of these assets, so in effect pulling in future royalties to provide higher initial returns to shareholders. So some changes in the financial management of the company, I think would be quite interesting.
Number two would be tax management strategy. The company is a U.S. Corporation today. I am sure there are a number of various strategies out there that we are contemplating that will have the ability to reduce those real tax rates; and then finally thinking about terminal value. If you were able to solve number one and two, and bring in additional royalties over a period of time, you've created an entity that will drive a significant flow-through to shareholders, provide ongoing royalties, and have the ability to support a permanent capital structure.
I think between the three of those strategies, this entity has an ability to create significant shareholder returns. We are very excited with this separation that's happening, the opportunities for both companies, and with the various assets underneath those, which I'll turn to now.
So, I would like to start with an overview of the respiratory market. If you take a look at the data here, over the last several years, the global respiratory market has been growing in the neighbourhood of mid-single digits and currently is approximately $20 billion. This is a very, very large market opportunity. The majority of this market today is occupied by combination medicines that consist of a long-acting beta agonist and inhaled corticosteroid. The two biggest ones out in the market today are ADVAIR from GSK and SYMBICORT from AstraZeneca, and they comprise a vast majority of the upper part of the bar.
The lower part of the bar represents single-agent, long-acting muscarinic antagonist that is tiotropium or Spiriva from Boehringer and Pfizer, which is approximately $5 billion market today. So this market today, which is approximately $20 billion is a very substantial opportunity. Looking forward, we expect it to continue to grow.
According to DRI, their forecast by 2020, this market will grow approximately 27% from where it is today, so we expect this opportunity not only to be substantial, but to continue to grow very significantly over the foreseeable future.
Importantly, one of the major trends that will be happening here are additional types of therapeutics out there that have the opportunity to treat patients better, moving from twice-a-day therapies to once-a-day therapies, which again has the opportunity to increase compliance rates, and we'll talk about both of these here going forward, a very substantial opportunity, Theravance does not need to capture this entire thing to be extremely successful.
Another way to look at the market is to divide this in a little further granularity. On the left side of both of these charts, you are going to see a large bar, which represents the combination medicines of long-acting beta agonist with an inhaled corticosteroid, again ADVAIR and SYMBICORT. This market is serving both asthma and COPD. Roughly speaking, 50% of the revenues from each of those bars are associated with asthma, roughly speaking 50% with COPD with a view that COPD is growing a little bit faster than asthma today.
The other three bars, the single -agent, long-acting, muscarinic antagonist, the single-agent, long-acting beta agonist, and the short-acting medicines principally are concentrated in COPD, so this is a very substantial market. As you think about the products that I talked about a little earlier, BREO RELVAR, it will principally compete on the left hand side of this chart and then ANORO, again the dual bronchodilator will compete on the right side of the chart.
I mentioned compliance a few minutes ago. This is a chart that was presented by GSK at their recent advisory committee for BREO in early last year, and what you see is that on average, respiratory medicines have an overall low rate of compliance, and this is unfortunate.
Our compliance in this category is quite important for overall patient outcomes. If you look at various publications, you see that increasing rates of compliance result in overall lower medical costs and better patient outcomes, so anything that can be done to improve patient compliance, I think ultimately results in that outcome.
Looking here as you go from four times a day, three times a day, two times a day, and all the way up to once-a-day, what you see is roughly a 5 percentage point to 8 percentage point increase in compliance each time you simplify the dose.
All of our medications that we are developing with GSK are once-a-day medications. So we think we have the ability here to move patients from twice-a-day medications to once-a-day medications if this compliance follows. If the data that has been presented to date is correct and that's what we see, it should result in better patient outcomes and potentially overall lower healthcare costs, so once-a-day dosing is quite important for us.
What I would like to do now is lay out some additional thinking here before we jump into the specific products. On a chart that was presented by GSK two years ago at ERS by one of their key opinion leaders, Neil Barnes, and what he was trying to lay out is a potential future treatment paradigm for COPD, and he was trying to envision what some of the new products that are coming down the market may be.
Now COPD, as many of you know is a progressive disease. Unfortunately today, there is no medicine that stops the progression of the disease, so every patient who comes in with COPD is going to advance through box A, into box B, box C, box D, eventually as they get to very severe COPD, so it is a progressive disease.
Generally, when a patient comes in, their most important need is symptomatic relief of an inability to breathe or a breathlessness state, so they are going to come in and they are going to start therapy on a short-acting rescue medication, some sort of a short-acting beta agonist or short-acting muscarinic antagonist taken on a PRN or a patient-reported need, basis.
As the disease progresses where that is no longer sufficient to provide them control, the next step-up today is generally a single-agent, long-acting muscarinic antagonist, and what you will notice here is that it is not on the chart, well he note – or what he is owning is something called the best bronchodilator.
The best bronchodilator potentially is a product like ANORO where you have not only a muscarinic antagonist, but a Beta2 agonist, so you have two bronchodilators there that potentially could provide significant bronchodilation for a patient and that's what we've seen today in our Phase III program.
So we believe it's possible that the next step-up for a majority of these patients as they are progressing through could be something like ANORO. I happen to be the resident ANORO bull if you will. At Theravance, I think this is a very exciting product opportunity, and we've brought a very differentiated medicine to patients.
As the patient continues to progress through the disease, the next step-up will be box C, in this case either their principle need is the ability to breathe better, in which case they withstand a product like ANORO or they are either having or have a risk of an exacerbation where it will be beneficial to have an anti-inflammatory on board such an inhaled corticosteroid.
And then eventually as the patient gets towards the end stage of the disease, you have what is today the opportunity to come on a couple different medicines in different devices to provide triple therapy.
So, for example, a number of patients today are taking two separate medications. You do see patients with severe COPD taking medicines such as Advair twice-a-day, and they will combine it with the medicine once-a-day such as tiotropium from VI. Again, that's where our triple-therapy program would fit in here if we are successful with that.
So, here's a view of what our portfolio looks like today that we're developing with GSK. We have single-agent medicine, VI monotherapy, again those long-acting beta agonists that is in both -- sorry, in BREO and ANORO. We have our own single-agent, long-acting muscarinic antagonist, TD-4208.
The next step-up again into the dual mechanisms, we're developing BREO and ANORO. And then finally, triple therapy where we have two paths that we're currently pursuing to create triple therapy in a single device, MABA/ICS as well as UMEC VI/FF. So for success of this, we will have the most comprehensive program in combination with GSK in the industry today for the treatment of both Asthma and COPD.
All of this is anchored by one device, and this is important. Data presented last year at ERS showed that the usefulness of a device, the ease-of-use by a patient is extremely important in the overall patient treatment. The more complicated the device, the harder it's to use, the harder it is for a doctor to teach the patient about it, and the self-preferred patients particularly in COPD where many of these patients are elderly and in poor health.
The ELLIPTA device is a common platform across here, so we would be able to potentially treat a patient from their initial stages on a single-agent with the ELLIPTA device all the way through triple therapy here, and I can't emphasize how pleased we are with the overall ELLIPTA device.
And then finally what I'm going to talk about briefly here with regard to partnership are the royalty rates associated with these programs that will flow to Theravance or eventually to Theravance Biopharma as part of the triple therapy that's approved.
On the left hand side, this is our LABA agreement. We have royalty rates that range from 15% of the initial $3 billion for RELVAR and BREO on an annual basis with 5% royalties thereafter. For UMEC VI/FF and for ANORO, they have similar royalty rates. They are not combined for the purposes of it, but they have similar royalty rates that start at 6.5% per year. They are a couple steps up and then they top out at 10% per year for everything above and beyond $2.25 billion.
On the right side of the chart, we have our MABA agreement. MABA royalties are slightly different. They start each year at 10%. They have a step-up and then a third step-up to 20%. All of that happens in the first $3.5 billion each year and then probably above and beyond $3.5 billion, the royalty rate drops down to 7.5% for MABA monotherapy.
And the final piece is for MABA plus a steroid, you just multiply the MABA royalties times 0.7, sometimes 17%, so the potential for substantial royalties to go to Theravance.
With this, I'm going to shift gears now, move out of the programs that are partnered with GSK and talk about a couple very exciting internal programs that will be highlights of Theravance Biopharma post separation.
First one I'd like to talk about is TD-4208. I mentioned this earlier. This is a Theravance-owned single agent long acting muscarinic antagonist that we are developing in a nebulizer for the treatment of COPD.
The nebulizer market today is a market where there is no current once-a-day medication. It represents something in the neighbourhood of 5% to 10% of the total volume. So this is a substantial opportunity, given the size of the market that I've talked about earlier.
We completed an initial Phase 2b study in 2013 that show this looks like a once-a-day medication. I will show you some data here in a minute that showed very flat time curves on bronchodilation and an overall safety profile that was unremarkable.
We think this product is quite interesting. As I mentioned in the plan right now, is to advance this into a larger Phase 2b and potentially to take it all the way to the market ourselves which is something we would have the financial capability to do.
I mentioned the market for nebulized product we believe today is in the neighborhood of 5% to 10% of the total volume that's prescribed out there for COPD. And again, there is no single agent that is a once-a-day medication in here. So if we are successful in this, it would be truly a unique product offering in the market.
Flipping to data, here are the time curves that we generated during our first phase 2b program which was reported last year. As you can see, very flat time curves. Importantly down on the bottom what we did is took a very critical look at the ratio of the bronchodilation during the initial 12 hours of the day versus the bronchodilation during the final 24 hours a day. And what you see is nearly a one-to-one ratio, and what that means is you have a very flat curve over time.
This provides us a fair amount of evidence that we believe we have in once-a-day medication here. Now I will just caution that we have not run the once-a-day, twice-a-day study that the FDA requires on this, but certainly this particular curve was about as good as we could have hoped for coming into this.
We haven't made final dosing decisions yet that we will be taking forward into this larger Phase 2b program, but it will more likely not be somewhere in the middle of this dose range here. I think today, we are fairly comfortable that 22 would be below the therapeutic level. We think the 700 is probably a little on the high end. But again, we're working through that now and I would have said stay tuned for when these results or when the clin trial posting comes up.
From a safety profile there was really nothing remarkable here. The overall in terms of adverse events on medication was similar to placebo. I'm not going to go through all the bullets here. As you can see, here are the most common adverse events. Again, really overall unremarkable profile from a safety perspective, so again we were quite pleased with this.
I think I mentioned next step with this advanced it into Phase 2b, which we intend to do this year. So we expect a larger program where we are really going to narrow down the dose with an expectation and hope that we build a move into Phase 3 following that.
The last program I'm going to talk about today is another program that is currently in a Phase 2 program where we're evaluating the potential for fibromyalgia. Fibromyalgia, as you know, is a pain condition. The intention would not be that this medication would only be associated with this indication, but rather potentially would be applicable to a broader set of pain conditions if it's successful.
What's unique about this molecule, this is in a class that many of you know as an SNRI. We call it NSRI. And the reason for that is it is a dual reuptake inhibitor with a heavier emphasis on norepinephrine uptake -- reuptake rather than serotonin. So it's got a norepinephrine balance here. We believe this has a potential to provide similar efficacy to some of their products out there, while avoiding some of the serotonergic side effects.
The program is underway right now. We expect to have results from this here in the first half of this year. I think we had a fair amount of optimism coming into this program and the company is quite excited about these results coming up here than its first half. More likely than not, this would be a program, we'd have to partner. I do not think we would take this particular one all the way forward as the development program as a potential to be large.
Overall pipeline, we're not going to go into all these programs here, but Theravance today again has a respiratory portfolio. We have a number of anti-infectives in our bacterial portfolio sinus and pain. We've talked about 9855 and TD-1211, our OIC compound very briefly, and then a series of programs here in the GI Motility Dysfunction. So we are fortunate to have a broad portfolio of potential product candidates here to take forward in biopharma.
Last thing I'm going to talk about just very briefly before we move to the breakout room here. Looking into 2014 what is it we're excited about? Number one, without a doubt, is the overall separation of the company. The timing guidelines we've been giving here are for early this year, early to me, means during the first quarter sometime. As far as I know, we are jumbling on fact to hit that.
I will throw on caveat out there. We do have to run through a couple of regulatory agencies, so there are various third party pieces we don't have control over. So, for example, the IRS and the SCC are two big pieces of the ultimate result that we're going to need to do, so that piece appeared to be well underway today. However, as you guys are aware, with regulatory agencies you're not done until you're done. So I would say we feel good today about where we are, but some more work to do.
Further launches with our respiratory programs partnered with GSK, approvals on launches are potential through the rest of this year and then advancing the various components of our pipeline. We've talked about some of the respiratory programs. We've talked briefly about 9855, the NSRI. We talked about 4208, our long acting muscarinic antagonist.
And then finally, a program we didn't talk about, Velusetrag. This is a 5-HT4 agonist. We expect to have some Phase 2 data reading out here. Early this year in a Phase 2 study for gastroparesis, I deliberately avoided this. This is a very exciting opportunity if it works as there are very few treatments for the treatment of gastroparesis today. But we generally characterize this as a fairly risky program overall. So we're keeping our external expectations low, but obviously internal hopes high that this ultimately proves to be successful.
So with that, I'd like to thank you for your time. And please, join us in the breakout room across the hall. Thanks.
[Q&A not covered in this event].
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