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Executives

Cheryllyn De Ocampo – Investor Relations Associate

Rick E. Winningham – Chairman of the Board & Chief Executive Officer

Renee Gala – Senior Director of Financial Planning & Analysis

Analyst

[Rodney Gao] – Sanford Bernstein

Analyst Ken Cacciatore – Cowen & Company

Howard Liang – Leerink Swann, LLC.

Analyst David Friedman – Morgan Stanley

Analyst for Thomas Russo – Robert W. Baird & Co., Inc.

Theravance, Inc. (THRX) Q2 2012 Earnings Call July 31, 2012 5:00 PM ET

Operator

Ladies and gentlemen at this time I’d like to welcome everyone to the Theravance conference call to review results for the quarter ended June 30, 2012. During the presentation all participants will be in a listen only mode. A question and answer session will follow the company’s formal remarks. (Operator Instructions) Today’s conference call is being recorded. Now, I’d like to turn the call over to Cheryllyn De Ocampo, Investor Relations Associate.8

Cheryllyn De Ocampo

We me on the call today are Rich Winningham, our Chief Executive Officer and Renee Gala, Senior Director of Financial Planning & Analysis. Renee is filling in for Mike Aguiar our Senior Vice President and Chief Financial Officer who is on vacation.

First, Rick will review highlights from the quarter and then Renee will review our financial results. Following our comments we will open up the call for questions. Earlier today Theravance issued a press release detailing second quarter 2012 financial results and recent corporate developments. A copy of the press release can be downloaded from our website or you can call investor relations at 650-808-4100 and we’ll be happy to assist you.

Before we get started we’d 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, strategy and beliefs. These statements are based upon the information available to the company today and Theravance assumes no obligation to update these statements as circumstances change.

Future events and actual results could differ materially from those projected in the company’s forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company’s Form 10Q filed with the Securities & Exchange Commission.

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

Rick E. Winningham

These past few weeks have been very exciting for Theravance with important developments in our respiratory programs partnered with GSK and our peripheral Mu Opioid receptor antagonist TD-1211 opioid induced constipation or (OIC). Let me begin with our respiratory programs which are partnered with GSK starting with FF/VI, with the proposed brand name Relvar in the European Union and Breo in the United States.

FF/VI is an investigational once a day inhaled combination medicine comprised of fluticsone furoate an inhaled corticosteroid and vilanterol a long acting Beta2 agonist or LABA for the maintenance treatment of chronic obstructive pulmonary disease or COPD and asthma. GSK and Theravance recently reached a major milestone with the submission of regulatory applications for FF/VI. For the treatment of COPD, GSK filed for the 125 dose of FF/VI in the US and the EU. For the treatment of asthma GSK filed for both the 100/25 microgram and the 200/25 microgram doses of FF/VI in the EU. For asthma in the US, GSK and Theravance are reviewing the strategy for a future filing. For both indications FF/VI would be administered by a new dry powder inhaler with the proposed brand name Ellipta.

Now turning to the second respiratory program LAMA/LABA or UMEC/VI. UMEC/VI is a once a day investigational medicine combining a long acting Muscarinic Antagonist, Umeclidinium Bromide or UMEC and a LABA, VI, for the maintenance treatment of patients with COPD. UMEC/VI is also administered by the new Ellipta inhaler. Earlier this month GSK and Theravance announced positive result from four pivotal Phase 3a studies of UMEC/VI involving over 4,000 patients with COPD.

These four studies include two 24 week efficacy studies that compared the combination UMEC/VI, its components and placebo and two 24 week active comparator studies that compared the combination with tiotropium. Tiotropium, as you know, is a widely prescribed maintenance bronchodilator for COPD.

The data from these four studies form part of the overall evaluation of efficacy and safety of the UMEC/VI combination and the individual components in approximately 6,000 COPD patients. The ongoing registration program includes a 52 week safety study and two replicate 12 week crossover exercise studies. Subject to the successful completion of these additional studies, GSK plans to commence global regulatory submission for UMEC/VI from the end of 2012 which is ahead of schedule.

Turning now to our third respiratory program the MABA program, ‘081 the lead asset is a single molecule bifunctional bronchodilator with both a muscarinic antagonist and a beta2 receptor agonist activity. The result from the Phase 2b study and a number of non-clinical enabling studies will inform the selection of the most appropriate dose and dosing interval for ‘081 and progression to Phase 3 will be dependent upon successful completion of these ongoing enabling studies.

In September, several presentations covering data from these respiratory programs will be given at the European Respiratory Society Annual Congress in Vienna. Importantly, data form a majority of the studies of the Phase 3a FF/VI programs for both COPD and asthma will be presented including the exacerbation studies. Also a late breaker presentation will describe data from the Phase 2b low dose crossover study of UMEC and COPD. Data from the Phase 2b study for MABA will also be presented at ERS.

In addition to these GSK partnered respiratory programs Theravance will present data on a Phase 2 proof of concept study with TD-4208 our internally discovered long acting muscarinic antagonist for COPD. The respiratory programs signify our commitment to help address the needs of millions of people affected worldwide by these serious diseases and represent a significant opportunity for Theravance.

Let me now discuss our peripheral Mu Opioid receptor antagonist TD-1211. TD-1211 is a once a day orally administered peripherally selective multivalent inhibitor of the mu opioid receptor. Earlier this month we announced positive top line results from Study 84, the key study in a Phase 2 b program evaluating TD-1211 as a potential treatment for chronic non-cancer pain patients with OIC.

The Phase 2b program consists of three studies 74, 76, and 84 designed to evaluate doses and dosing regiments for Phase 3. Study 84 was a five week randomized double blind parallel group dose ranging study evaluating 5 milligram, 10 milligram, and 15 milligram doses of TD-1211 versus placebo. The study randomized 217 patients with OIC and the goal of the OIC program is to develop a best in class medicine that normalizes bowel function in patients without interfering with the opioid analgesic effect.

Based upon our market research we believe that efficacy and relieving the symptoms of OCI is the product attribute that will most significantly drive market share in this category. I’m pleased to report that all doses of TD-1211 demonstrated statistically significant increases in average complete spontaneous bowel movements or CSBMs per week which is a stringent measure of efficacy.

In addition, we saw consistently durable effect throughout the efficacy analysis period with no evidence of [CNS] penetration. TD-1211 was generally well tolerated and patients receiving the 10 and 15 milligram doses of TD-1211 were generally satisfied with their treatment. The results of Study 84 are very encouraging and support progression into Phase 3 development. We are preparing for discussions with global regulatory authorities and we have reengaged with potential partners on TD-1211.

Detailed results from all three studies will be presented at future medical conferences. There are approximately four billion treatment days of non-injectable opioids in the United States every year. About 40% of those total patients on chronic opioid therapy suffer from OIC and self treat with laxatives. Approximately 45% of those patients still report insufficient relief of their OIC symptoms, hence the opportunity for a safe and effective peripherally restricted new opioid antagonist is significant.

I’ll now turn the conference call over to Renee Gala, our Senior Director of Financial Planning & Analysis to review the financial results.

Renee Gala

Today I will discuss the results of the quarter ended June 30, 2012 and will review guidance for the full year 2012 expenses. For the quarter ended June 30, 2012 Theravance had a net loss of $37.1 million or $0.42 per share. Research and development plus general and administrative expense excluding stock based compensation totaled $31.2 million for the second quarter which was generally in line with our expectations and prior guidance.

Revenue totaled $1.4 million during the second quarter 2012 compared with $6.4 million in the same period 2011, a decrease of $5 million. This decrease was primarily due to the termination of our VIBATIV collaboration agreement with Astellas in January. As a reminder, we will not be recognizing any further revenues related to our terminated Astellas agreement.

Total R&D expenses for the second quarter of 2012 for $29.5 million compared with $22.8 million for the same period last year. This increase was primarily due to Phase 2 clinical costs related to TD-1211, cost associated with our preclinical and late stage discovery program and higher employee related expenses. Excluding stock based compensation, non-GAAP R&D spending was $26 million during the second quarter of 2012 compared with $19.4 million for the same period last year.

General and administrative cost were $7.6 million during the second quarter of 2012 compared to $7.2 million for the second quarter of 2011. This increase was primarily due to higher external and employee related expenses partially offset by lower facilities related costs and stock based compensation expense. Excluding stock based compensation non-GAAP G&A expense was $5.2 million during the second quarter 2012 compared to $4.4 million in the same period in 2011.

Cash, cash equivalent and marketable securities totaled $378.7 million as of June 30, 2012, an increase of approximately $178.5 million during the second quarter. This increase was primarily due to GSK’s purchase net of issuance cost of $212.5 million of our common stock partially offset by cash used in operations.

Now, turning to our guidance for non-GAAP expenses for 2012. For the full year we are reiterating our previous guidance for operating expenses to be in a range of $120 to $130 million. We currently expect to be at the higher end of that range. As a reminder, our guidance includes total research and development expense and total general and administrative expense but excludes stock based compensation.

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

Rick E. Winningham

Since our last quarterly call GSK has invested over $200 million in Theravance, we announced positive Phase 3 data from the LAMA/LABA program in COPD. We also announced a plan to begin global UMEC/VI filings from the end of 2012. In addition, we reported positive Phase 2b data with TD-1211 in the peripheral mu antagonist program and announced the European Relvar filings for COPD and asthma and the Breo filing for COPD in the United States.

In summary, I’m very proud of the Theravance team, our collaboration with GSK and the recent accomplishments in both our late stage and early stage programs. We are very excited about the future upcoming milestones for the company. In particular, the upcoming presentations at ERS in September including the FF/VI Phase 3 data, additional data on UMEC, a podium presentation on the MABA program and a presentation on the 4208 LAMA data.

Now, I’d 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 comes from [Rodney Gao] – Sanford Bernstein.

[Rodney Gao] – Sanford Bernstein

I guess a couple of questions around the issue of LAMA in general. First, about the UMEC trial, just to confirm, would this be the long awaited dose response trial going down to a much lower dose that we’ve been hearing about that will be presented in ERS? And are you going to actually have an investor event of your own at ERS?

Rick E. Winningham

Yes, the UMEC study that I referred to is the lower end of the dose ranging study that we’ve discussed before. We’re currently still discussing whether we have an investor event in Vienna and we’ll be getting back to the investment community about that in the near future.

[Rodney Gao] – Sanford Bernstein

Second, I’m not sure if you’ve had a chance to look at the data yet but Forest just announced that aclidinium would have a post approval study to look at cardiac event because they had a little bit of a signal off cardiac events in their pivotal trial. I don’t know if you’ve had a chance to look at that data yet but is there a similar cardiac signal in the UMEC arm or in the LABA/LAMA arm of the UMEC/VI trials?

Rick E. Winningham

Well today, and I think just going back to the UMEC study, the data that we released from the Phase 3 program a few weeks ago, incident of adverse events and [SAEs] and cardiac adverse events were relatively similar across all treatment arms in those studies. In response to your question, I’ve read the FDA’s briefing document on aclidinium. They reference several different analyses that the agency did on cardiac events and potential risks so that may be what Forest is doing in terms of a Phase 4 study.

[Rodney Gao] – Sanford Bernstein

I guess what I’m asking is it sounds like you’re saying that you have not seen a similar signal in your own study?

Rick E. Winningham

Based on the data that we’ve reviewed to date from the Phase 3 program, that’s correct.

[Rodney Gao] – Sanford Bernstein

Last, since you’ve mentioned your own LAMA that you’ve been developing, can you give us a brief update, I mean how far do you expect to take this compound on your own before partnering it? A little bit about how you think about the development of this compound, I think you mentioned that you meant to be developing as a nebulizer product?

Rick E. Winningham

Yes, we’ve done single dose study with the TD-4208 in patients with COPD using a nebulized formulation. That’s the data that will be presented at ERS. The product has got a nice long activity although we haven’t done a formal once a day twice a day study yet. Certainly the efficacy curves are relatively flat over 24 hours which are encouraging. The product itself while we administer it in a nebulizer there’s nothing about the physical characteristics of 4208 that prevent it from being developed in a near dose inhaler either as a single agent or as a combination with other products.

How far we take the program will sort of depend on the opportunities that we have in front of us. The next step likely for the program is a multiple day and extended dosing period Phase 2b dose ranging study in a nebulizer.

[Rodney Gao] – Sanford Bernstein

Which you’ll do on your own I take it?

Rick E. Winningham

Yes. On a relative basis it’s a relatively inexpensive study and one which we’re more than capable of executing by ourselves sort of within the general constraints of the financial limits that we have.

Operator

Your next question comes from Analyst for Ken Cacciatore – Cowen & Company.

Analyst for Ken Cacciatore – Cowen & Company

Just a couple of questions, first could you talk about your TD-9855 program and other ADHD clinical trials suggest results by the end of the year so could you talk about its differentiated from existing therapies and when we might actually see data?

Rick E. Winningham

TD-9855 is a norepinephrine serotonin reuptake inhibitor. It is a product that we are currently developing in ADHD. Would likely also be developed for a pain condition such as fibromyalgia. The unique characteristics of TD-9855 are that it is more norepinephrine heavy than serotonin heavy, more selective for the norepinephrine reuptake mechanism than for the serotonin reuptake mechanism and that it has a long half life that may be quite useful in not requiring titration either up to effect or titration post therapy should a patient want to come off therapy.

So that’ really where we are. We’re relatively early with the MARIN program. I think Phase 2 data in ADHD will likely – we won’t have that until probably the end of 2013 and we’ll sort of get that data as well as potentially other data from a pain program and see where we go from there.

Analyst for Ken Cacciatore – Cowen & Company

Then just a quick question on the OIC compound; have you had your end of Phase 2 meeting with the FDA yet? And any thoughts on the recent Relistor setback?

Rick E. Winningham

No we haven’t. The Phase 2b program just recently completed. We’re compiling that data in preparation for a meeting with global regulatory authorities and we haven’t had those meetings yet. I did read the various reports about the complete response letter on Relistor and I really don’t have any comments because I really don’t know any more than anyone else knows about the reason or the content of the letter. Like others, we’ll certainly be following activities in the space.

I would say that our development program for TD-1211 in the future is different than the development program for either subcutaneous Relistor or oral methylnaltrexone in that our objective really is to restore bowel function in patients to normal so the end points that they’re looking at with the Relistor program are unlikely to be the end points that we would be looking for in the TD-1211 Phase 3 program.

Operator

Your next question comes from Howard Liang – Leerink Swann, LLC.

Howard Liang – Leerink Swann, LLC.

First on FF/VI, do you expect an advisory panel meeting? And also on the regulatory front the filing of UMEC/VI, I think the statement is from the end of 2012. Does that mean there will be a rolling submission or are they just referring to Europe?

Rick E. Winningham

First on FF/VI I would expect that there would be an advisory committee but I don’t know one way or another that’s just my general expectation. On UMEC/VI no I’m not meaning to comment that it will be a rolling submission, it will just be that is when we will start the filings in the various jurisdictions US, Europe, likely to be followed sometime later by filings in Asia in that the Asian trials at [inaudible] trials.gov there’s a couple of specific UMEC/VI trials that are being done to satisfy regulatory requirements in Asia and they won’t be complete or the data won’t be in by the end of this year. But US and Europe we should be in good shape.

Howard Liang – Leerink Swann, LLC.

In terms of the remaining top line results from the UMEC/VI program, how do you plan to communicate the results of the 52 week study and the two 12 week studies?

Rick E. Winningham

The 52 week safety study hopefully will be unremarkable and the two 12 week exercise study I’d expect some broad very general top line results from each of the studies. Of course, as long as the 12 month safety study is unremarkable really the meat of the filing will come from the four studies from a clinical perspective that have already completed.

Howard Liang – Leerink Swann, LLC.

Are you planning on a press release on those results?

Rick E. Winningham

Yes, I think we’ll press release the top line results of those studies when they come out.

Operator

Your next question comes from Analyst David Friedman – Morgan Stanley.

Analyst David Friedman – Morgan Stanley

Just two quick ones, the first is do you know if GSK is or is planning to develop a LAMA/ICS combo? And then the second is where do you guys stand on developing a MABA/ICS combination? Is that still in the works?

Rick E. Winningham

So the LAMA/ICS combination for GSK I would direct you back to them. I don’t want to comment on that particular program because that particular combination is outside the scope of the Theravance collaboration with them. As far as Theravance LAMA/ICS right now we’ve got a LAMA that looks fairly attractive in terms of its physical properties and its efficacy in [man] albeit the studies that we’ve done thus far has just been a nebulized format but there’s nothing that we know today from a physical characteristics perspective that would prevent the delivery of that in an [MDI] either as a single agent or in combination with an inhaled corticosteroid in future studies. We haven’t undertaken that development program yet but certainly the characteristics of the molecule to date that we understand would support such a development program.

Operator

(Operator Instructions) Your next question comes from Analyst for Thomas Russo – Robert W. Baird & Co., Inc.

Analyst for Thomas Russo – Robert W. Baird & Co., Inc.

You mentioned there’s a number of presentations you have ready to go at ERS. Could you just remind us how you will be setting expectations or kind of suggest how we might evaluate such as the Relovair or the LAMA dosing data?

Rick E. Winningham

The titles of the accepted abstracts are currently available on the ERS website. There’s a total of 19 that are related to FF/VI, 15 clinical abstracts, two pre-clinical, and two that deal with genetics so it’s an incredibly comprehensive set of data that will be presented relative to FF/VI. There’s an oral presentation of FF/VI of one of the six month pivotal COPD studies, lung function low to mid dose studies. There’s also, as I noted, with MABA there will be an oral presentation of the Phase 2b study in MABA. Then there will also be two presentations on UMEC, one of them being a late breaker abstract that is the Umeclidinium dose response and dosing interval in COPD and the other one is simply just an [inaudible] study. So all of these titles are present on the ERS website although the full abstracts won’t be available until a few days before the meeting.

Analyst for Thomas Russo – Robert W. Baird & Co., Inc.

Then I guess I have one separate question, you just mentioned the MABA, previously you’ve spoken about making a go/no go decision on the MABA program by the end of 2012 after your Phase 3 enabling studies are complete such as the MABA FP trial. I’m wondering if you could just offer any updates on the timing of completion for these remaining trails? And perhaps, just remind us what kind of outcomes will be necessary in order to advance?

Rick E. Winningham

We’re still on a timeline of late this year making the decision and I think these are sort of classic Phase 3 enabling long term safety studies and as long as we get through those safety studies based on the clinical data we have to date we should be in a good position with MABA. But, we’re not through those yet, we won’t be through those for another couple of months and we hope to update you at that point in time.

Operator

Your next question comes from [Rodney Gao] – Sanford Bernstein.

[Rodney Gao] – Sanford Bernstein

Since you’ve not mentioned it I just want to follow up, you’ve mentioned a LAMA/ICS potential combination you’ve not mentioned a MABA/ICS which I thought would be an initiative together with a MABA standalone trial assuming the Phase 2 justifies it?

Rick E. Winningham

I appreciate you bringing that up. Clearly, the MABA program there are two different products that we envision there. One of them is the MABA as a single agent, the other is the MABA plus an inhaled corticosteroid both drugs being delivered in one device therefore enabling triple pharmacology but delivered through a two drug inhaler. The timing of entry assuming that all goes well with the ongoing MABA program, the timing of a MABA/ICS entry in Phase 3 will be dependent on whether we go with the twice a day route with the MABA or the once a day route with the MABA.

Should we choose to go with the once a day route then a lot of the studies that would support MABA once a day that would be likely combined with the once a day steroid, a lot of that work would need to be done over the next 12 plus months or so. In that particular scenario MABA would advance probably as a single agent and the MABA/ICS as a once a day product would follow sometime later. But I appreciate you bringing that up because clearly the MABA/ICS combination is a very important component of the overall MABA program.

Operator

It appears we have no further questions on the phone. I’d like to turn the conference back to Mr. Winningham. Please go ahead sir.

Rick E. Winningham

I’d like to thank everyone for participating today. We’ve had a terrific last few months and we look forward to more positive news over the next few months. Have a great day.

Operator

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

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