Theravance's CEO Presents at Barclays Global Healthcare Conference (Transcript)

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Theravance, Inc. (THRX) JKLM Conference Call March 11, 2014 10:15 AM ET


Michael W. Aguiar – Senior Vice President and Chief Financial Officer


Ying Huang – Barclays Capital, Inc.

Ying Huang – Barclays Capital, Inc.

Hi, good morning everyone. So my name is Ying Huang. I'm the U.S. biotech analyst here and we are very pleased to have our next presenting biotech company which is Theravance. And Theravance has made a lot of progress recently in terms of regulatory approvals. The Company is in a good position to launch a couple of new drugs in COPD and asthma.

So we have Mike Aguiar, the SVP and Chief Finical Officer of Theravance here. Without furthering, let me just turn the podium to Mike. Mike?

Michael W. Aguiar

Great. Well, thank you very much. Before we get started, of course wanted to thank Barclays for the opportunity to present to you guys today, and then secondly, the Theravance safe harbor. We will be making a number of forward-looking statements today. I think everyone knows the future and uncertainties so possible that not all the forward-looking statements will ultimately come to pass.

With that I’d like to turn out to Theravance. Theravance, as many of you know was founded in the late 1990s, on some insights that came out of Harvard University focused on the technology around multivalency. Essentially trying to find small molecule that have more than one bindings on a particular receptor. The theory was by having a multivalent compound you have greatest selectivity, more potency and a potential for fewer side effects.

Since that point in time, we have evolved quite a bit. Today we have a very extensive product pipeline all the way from a number of marketing products, including the respiratory program partner GSKs, as well as our own internal program VIBATIV for the treatment resistant gram-positive infections.

2013 was a very important year for us. We had a number of transformative events. In particular we had three product approvals in United States, BREO ELLIPTA for the treatment of COPD which is a program we have partner with GSK for the treatment of either asthma or COPD, but again with the improving phase the treatment of COPD, it’s a combination of once a day long-acting beta-agonist, combined with a once a day inhaled corticosteroid, and delivering the Ellipta dry powder inhaler device.

Second approval was VIBATIV for the treatment of hospital-acquired pneumonia due to resistant gram-positive infections and that was not only approved in the U.S., but also was reintroduced by Theravance and then late in the year ANORO ELLIPTA which is a combination of two bronchodilators, a long-acting inhaled beta-agonist as well as a long-acting muscarinic antagonist for the treatment of COPD and that was approved in December. So terrifically pull here from a product approval perspective. In addition in April we announced that the company has plans to separate into two separately publicly-traded companies, we’ll talk about that in fair amount today that is certainly a high point of discussion.

Looking into 2014 we anticipate additional launches with the respiratory programs, partner with GSK, the potential for additional approvals, completion of the separation as well as the advancement of our own internal pipeline.

So where is Theravance today? I will spend most of the time talking about our two lead respiratory programs. Again RELVAR, BREO ELLIPTA is the same product as BREO in the United States, RELVAR outside of the North America. Again it’s a combination of once-a-day long-acting beta-agonists, partnered with a once-a-day inhaled corticosteroid for the treatment of either asthma or COPD. It’s approved today in 31 countries, including North America, Europe as well as Asia.

ANORO ELLIPTA again, two bronchodilator for the treatment of COPD, it’s again approved in the U.S. and Canada. We have launch activities planned here to initiate in Q1 and hope you get the product launched in the not too distant future, as well as recently received a positive CHMP both in Europe. So we are looking forward to the actual EMA opinion coming up here in the not too distant future.

Additional data I’ll mention is the pipeline. I won’t spend a tremendous amount of time talking about the internal pipeline today. I will just focus the majority of those on the respiratory programs, but also a strong financial position in addition to that.

Turning now to the separation. In April last year we announced the intention to separate Theravance, into two publicly-traded companies, one is going to be Theravance,, Inc. this is the current corporation. Second one is Biopharma which is simply been dividend out to existing shareholders, so for each shareholder have their own x% of Theravance today. They would own x% of each of the companies going forward, after that they would just receive a pro rata dividend that will be in sum ratios to their Theravance holdings.

Biopharma is really going to contain the proprietary internal programs of Theravance, as well as certain of the GSK programs. GSK programs are highlighted by MABA. MABA is a Muscarinic Antagonist-Beta2 Agonist program for the treatment of COPD.

So it’s a dual-pharmacology in a single molecule. MABA paired with an inhaled corticosteroid, which is one of our potential paths for triple therapy, as well as UMEC/VI/Form 10-K. This is what it’s going to refer to – by GSK as a Diamond program. We’ve called that’s the close triple. So it has all three of the individual agents out of BREO and ANORO in one single device and GSK recently mentioned they had intended to move that into Phase 3 in 2014 or 2015. In addition, the respiratory programs, we have our own internally discovered and developed LAMA compound, TD-4208, recently completed a first Phase 2b in 2013. We plan to put it into a much larger dose-ranging study in 2014.

TD-1211, this is what we call our PUMA Compound. It’s an internally discovered peripheral Mu-opioid antagonist for the treatment of COPD. And then 9855, this is in treatment for fibromyalgia or the pain conditions as a dual norepinephrine serotonin and reuptake inhibitor. I won’t spend much more time about pharma today except in the Q&A session. I’d be happy to take any question there. The remaining co, Theravance again is the Theravance Corporation today. What we left there are the late stage programs partnered with GSK.

So, in particular RELVAR/BREO and ANORO and VI monotherapy, VI I’d say LABA that is contained in these other two programs, which has completed Phase 3, so two distinct companies, two different business objectives. Majority of the discussion will be focused here again on the Theravance and the respiratory piece.

Turning now to the respiratory market; this is a very significant market opportunity, which recently is approximately $20 billion on a global basis. The majority of sales today are in the LABA/ICS market segment. So that’s about $15 billion. The two major players in that market are Advair, which is a GSK product and Symbicort, which is an AstraZeneca product. Those two comprise the majority of the market today. And in addition to that the blue line at bottom is representing the atropine, which is about a $5 billion market for a single-agent long-acting muscarinic antagonist. These markets are growing in mid-single digits over the recent history and the forecast looking forward if you talk to focus like DRI International, for example, forecasting a 27% growth in the overall market by 2020.

We believe that this growth will ultimately be driven by increasing antagonist of COPD, the potential for new or potentially better medicines coming down the pipe that are in the pipeline today and overall patient population growth. So again an important, large and growing market looking forward.

One of the significant opportunities that we see is the potentials improved compliance in overall patient treatment. Looking at respiratory disease today what you see is a relatively low overall rate of compliance rates. The paper here that we’re referencing was presented at the recent BREO advisory committee meeting where we’re looking at various treatment to regimen from four times a day on the left side of the chart all the way to once-a-day on the right side of the chart and this data was based on a paper who was authored by Toy. And what you see is every time you go from more doses to fewer doses per day you get roughly in the neighborhood of 6%, 7%, 8% increase in overall compliance rates.

And by the time you go from twice a day to once-a-day you are looking from sort of the mid 30s to mid 40s percentage of overall compliance. So this is important because compliance is overall highly correlated with patient outcomes in this particular category of therapeutics and particularly the paper pointed out that not only really seeing higher compliance going from twice a day to once-a-day, but there is the potential for overall reduction in medical cost. I mean in this paper particular, they noted that for every 1,000 patient years, there is a potential to save the head of Theravance system about $300,000 a year overall.

So looking forward where we think reimbursement is going to be a bigger component of overall medicine, this is certainly something we’re looking forward to if we can show this type of data in the future, we think it will be a big competitive advantage. And we do have some studies that are underway right now with GSK or public Salford Lung Study where we’re looking very closely at this very specific issue. Do you see better compliance and lower healthcare costs that you’re going from current standard of care to once-a-day therapy.

Second chart, I am going to show you here is just to give you some perspective of what a potential future treatment paradigm for COPD may look like. This chart here is presented at ERS in 2012 by one of the key opinion leaders, Barnes [ph], where he was laying out a potential future vision of how COPD therapy might evolve going forward. So on the y axis we have the gold standards for COPD evaluation, on the x axis you have severity scales and generally speaking what happens is that the patient first presents with their disease, they are going to start off in the lower left hand box A, and they are going to progress from box A to box B, C, D, at which point they will be fairly helping us in that disease.

And since COPD is a progressive disease, generally every patient is going to evolve along this pathway throughout the course of their disease. When a patient first presents the current standard of care or short acting medicines such as [indiscernible] taken few times a day to help the patient breathe better, once the patient evolves, pass test, the next up today is generally speaking nervous system, again a once a day long acting muscarinic antagonist, that’s represented by block C. You will notice that it is monitored here, it does not see a single agent [indiscernible] as the best bronchodilator. The implication here was that potentially a combination of long-acting beta agonist with a long acting muscarinic antagonist might be a better overall treatment paradigm for patients. And so that’s what the best bronchodilator represents here.

As I mentioned earlier we have ANORO, which would fit into that particular product category. At that point of time as a patient continues to progress, more likely they are not going to migrate up to box C, at which point of the time they have either had or have the potential for an exacerbation generally. When the patient has an exacerbation, you likely have a steroid along with that. So you have a LABA. And more likely they will now be the next definite treatment paradigm, that’s BREO and then finally the D category kind of patient has severe COPD.

Today, frequently these patients are on triple therapy and that really fits into UMEC/VI FF or the model for inhale corticosteroid, if you operate the potential for once a day therapy of triple mechanism in a single device. So we are quite well prepared for what this potentialization of the future of COPD is laying out.

We now present to you what this looks like from both a single, dual and triple mechanism perspective. As I mentioned on the far left, we have single mechanism which includes VI mono therapy, this is a long acting beta agonist.

As you move into dual mechanism, we’ll talk about RELVAR. I know we’re out as well as MABA. And then finally, triple mechanism we have two paths today to having our potential triple mechanism in a single device and add that to the UMEC\VI FF or MABA plus inhaled corticosteroids. So we think we are extremely well prepared and potentially have the most comprehensive respiratory program in the industry today in partnership with GSK.

And it’s all anchored by one common device, this is the Ellipta device. For those of you who are familiar with this particular category device, ease of use is very important and our entire portfolio partner with GSK is really anchored around the Ellipta device. So again overall, I think we’re well prepared with this partnership looking forward. And then finally with regard to what does it mean to Theravance, we get royalties associated with these products. I’ll just walk through RELVAR and ANORO, since those are the two nearest term.

So with the RELVAR/BREO we get 15% of the first $3 billion of annual revenue and then for everything above and beyond $3 billion the royalty rate was down to 5% and that is reset every single year. And then ANORO was slightly different, there are upward tier royalties. Our first dollar of sales is at 6.5% and there were a couple of steps up to final tier of 10% which were at $2.25 billion. So very substantial economics, and a very big market with potential for Theravance.

Moving now outside of the GSK programs, I will highlight just one additional program, before we take some questions here, which is TD-4208 that was an internally discovered long-acting muscarinic antagonist that Theravance owns today and is developing. We have completed successfully several Phase 2 studies including mostly recently Phase 2b study which demonstrated a strong potential for once-daily dosing. And an overall safety profile that was quite encouraging.

So again, we’ve completed several, the next step for this is to moving into a larger Phase 2b study this year. I think those ranging study were really horning down on the dose with the hope that if we get the dosing right you will have the potential to moving into Phase 3 in the not too distant future beyond that in a nebulized format.

2014, the key programs, again the vast majority of our straight focus today is on our respiratory program partnered with GSK, as well as TD-4208. Beyond that we talked about a number of our other program including our antibiotics in particular telavancin or VIBATIV today. We’ve talked a little bit about 9855 and 1211 in the CNS area. Looking on that, we also have a number of other program today which have less investor focus but certainly are quite interesting from an internal perspective.

Last thing I’ll talk about before we open up for some questions here is this 2014 key catalysts, lot of focus on completing the separation. We announced recently we would finish the separation here in the second quarter. Again, separating out Theravance Biopharma from Theravance to create two separately publicly traded companies.

RELVAR, ELLIPTA and further launches planned this year. ANORO U.S. launch, activities are planned to commence in Q1 and then the advancement of a variety of other pipeline components.

So with that I’ll go ahead and be happy to take some questions either from the audience or from Barclays. So thank you very much.

Question-and-Answer Session

Ying Huang – Barclays Capital, Inc.

Maybe, I’ll kick fast and Mike what happens with the GSK stake when you separate into in to two different companies here?

Michael W. Aguiar

So the question is what their stake?

Ying Huang – Barclays Capital, Inc.

Yes, the GSK activity stake.

Michael W. Aguiar

Yes, that is a great question. So again today GSK owns about 27% of the company and with orphanol GSK, but everybody is that you will receive a dividend in proportion to your holdings. So following the separation GSK will own 27% of each of the entities. I’ll just probably just take a moment. We had a announcement that went out here about a week ago talking about some additional agreements we’ve entered into with GSK.

And largely speaking to these agreements, we’re clarifying the various relationships of the parties going forward for separation. Largely these agreements put into place that Biopharma, very similar operating standards and then components of the agreements we have in place today.

So really from our perspective there hasn’t been a big change in the overall relationship, there will be only the clarification of that. But following separation it will have rights to true up to maintain their ownership. There are a proxy voting rights that are inclusive on that agreement as well as standstill.

So again overall I think I would largely characterize the GSK relationship post separation as being very similar to where we are today with GSK, from an ownership perspective as well as generally speaking in the overall rights and obligations of the agreement.

Ying Huang – Barclays Capital, Inc.

Excuse me, if the questions are little naïve, but could you elaborate on the reasons for this spin-off, is it more a function of the certainty of the cash flows of Theravance, where the risk associated with the Biopharma pipeline?

Michael W. Aguiar

That’s a great question, and the answer is both. The discussions around the terms to separate the company, between Rich and myself, really started a number of years ago, eight, nine years ago where we were looking at what appeared to be two relatively distinct sets of assets. You have the internal pipeline which of course employees, a large number of people doing from the basic science all the way through various limited amount of promotional activities associated with [indiscernible] today for example. So this is very hands on, high effort type of activity.

When you think about the respiratory programs partnered with GSK, this is really much more of a situation. We have a small number of highly skilled scientific folks, commercial folks who are focused on joint steering committee and joint product committee type activity which is the planning activities associated with these programs. And what you have the ability to do was separating these assets, the Biopharma would look largely like Theravance look today.

So you think about cost of capital, or you think about overall risk profile, it will be quite similar to that, or as you pull that away from Theravance, where you have removed a significant portion of the spending as well as the development or theoretically you should have a much lower cost of capital which results in a lower discount rate as well as higher profitability, so you guys know how that work from an MTV perspective. So that was sort of theory one. You’ve moved the spending, you’ve reduced the discount rates, the value should go up.

Number two, generally speaking our view was that the earlier pipeline had exactly zero value invest, but more likely we’re not sort of a negative impact on the overall valuation of the company at that time.

By pulling it apart even if Biopharma trades a little bit choppy for a period of time, it clearly not going to trade at zero, certainly wouldn’t trade at a negative value, so we felt that if we were going to be able to create a significant amount of shareholder value through separating out these two types of assets, and then ultimately having a little better alignment with distinct classes of investors.

So for example, it’s likely that eventually the Theravance company would have a significant portion of divestiture to fit in ongoing returns of capital, where a Biopharma probably over time would get higher concentration of investors who are to fit in development and commercialization risk. So that was the underlying theory.

Unidentified Analyst


Ying Huang – Barclays Capital, Inc.

Hi, so on Theravance, in terms of the capital return, so what will that applied in terms of capital returns over time or what’s the guidance on that or the general opinion.

Michael W. Aguiar

So the question is around capital return. So we’ve given a little bit of potential strategies that were introduced at a conference earlier this year, and the reason I say potential is we don’t have obviously our Board of Directors in place, who would be the alternate board for Theravance. So I will talk about it more in a likely strategy both to agreed upon one. But in essence what we’re talking about, we have three potential strategies related to this.

So #1, we talked about the ability to do some additional financial work on the company. What do I mean by that? Generally speaking because it has a lower risk profile you would probably want to increase leverage on the company. You would probably want to find a way to monetize certain of the royalties to accelerate returns of capital to shareholders. So in those two contexts if you were to monetize royalties they would probably be opportunities for dividends potentially, as one vehicle returns the capital and if you were to issue debt on the companies, so increase the debt to equity ratio, we would probably want to purchase back additional shares.

So I think that the potential leader of share repurchase or dividends are certainly high on the possibility. So we’ve heard that in sort of strategy one, highly technical term at this strategy one. Strategy two was ultimately this is a U.S. based company, it is going to be fully tagged at a U.S. rate. So we want to look at the opportunity to reduce tax rate and manage that better and possible, and that was #2.

#3 was overall these asset that we have, there were a couple of them extremely long lives but a few with long lives is not many assets with incrementally long lives, so if I want to work my terminal value, and so what that would mean is over time you would probably want to acquire additional assets coming in.

So between this, there are 3 of those between sort of financially change in the overall debt to equity structure of the company returning, accelerate in terms of capital back. #2, managing the tax situation little better. Then #3, acquiring assets, I think there are three of those overall would have the potential with increase shareholders quite a bit and ultimately of course you can only get capital back, directly back to shareholders one or two ways which is dividends or share repurchases into the some combination of those.

Ying Huang – Barclays Capital, Inc.

Mike, can you talk about what you have been seeing in terms of market uptakes since you launched BREO in U.S and also the international market. So, talk about the competitive landscape?

Michael W. Aguiar

Sure. So the question is around what are we seeing following the BREO launch. So, sorry backing about the April time frame of last year, we’ve began acquiring providing guidance for that. We expected a launch that had a relatively shallow initial launch curve, and that’s what happened. And the reason for that type of guidance was, this is a primary care product, it takes a while to position education out there, to get reimbursement et cetera. So the launch curve is almost entirely exactly on the guidance that we have provided. What we have seen now is, we’re starting to see increases I think this week for example script up to about 20%. So we are largely inline with how we thought this launch was going to go.

Looking forward we expect to continue to see increases in overall reimbursement. GSK announced during the first quarter earnings for example, they came into 2014 with Part B reimbursement in the low single digits. By the end of the first quarter, it was at 25%, so again we’re continuing to see increases in that, with [indiscernible] scripts overall.

So again, a shallow initial launch curve right on that guidance and so I think overall we feel comfortable with that and we’re obviously watching that quite closely. So that’s for BREO in the United States. If you think of in Europe, again primary care launch and I would expect a launch profile of similar nature which is relatively flat or shallow initial slope that would grow over time.

Second part of your question was that, competitive responses, we see competitive response of course in the pharmaceutical industry, is when we see a competition coming along with a way, So that was absolutely competitor responsible, we see not only in the LABA/ICS phase but also we’ve seen activity happening in the tiotropium space as well, but again I think that was totally expected for all.

So the good news is where we’re partnered with GSK, they have a terrific respiratory franchise presence out there. So I would say we didn’t expect but of course we do see competitive versus our reactions to that.

Ying Huang – Barclays Capital, Inc.

Thank you. The great concession will be held across from the hallway, New York and sense room.

Michael W. Aguiar

Great. Thank you very much everyone.

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