Theravance Biopharma, Inc. (NASDAQ:TBPH) Q4 2019 Earnings Conference Call February 24, 2020 5:00 PM ET

Company Participants

Gail Cohen – Vice President, Corporate Communications

Rick Winningham – Chief Executive Officer

Philip Worboys – Senior Vice President, Research and Translational Science

Frank Pasqualone – Chief Commercial Operations Officer

Andrew Hindman – Chief Financial Officer

Brett Haumann – Senior Vice President, Clinical Development and Chief Medical Officer

Conference Call Participants

Andrew Berens – SVB Leerink

Louise Chen – Cantor

Alexander Duncan – Piper Sandler

Josh Schimmer – Evercore

Marc Frahm – Cowen

Alan Carr – Needham


Ladies and gentlemen, good afternoon and I would like to welcome everyone to the Theravance Biopharma Conference Call. 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] If listening via webcast, please mute audio on your webcast device before asking a question over the phone. I will repeat these instructions after management completes their prepared remarks. Today’s conference call is being recorded.

And now I’d like to turn the call over to Gail Cohen, Vice President, Corporate Communications. Please go ahead.

Gail Cohen

Good afternoon, everyone and thank you for joining our conference call and webcast to discuss our fourth quarter and full year 2019 financial results and outlook. Joining us are Rick Winningham, Chief Executive Officer; Andrew Hindman, Chief Financial Officer; Philip Worboys, Senior Vice President, Research and Translational Science; and Frank Pasqualone, Chief Commercial Operations Officer.

Following some prepared remarks, we will open the call for questions. A copy of the press release and the slides accompanying this call can be downloaded from our website or you can call Investor Relations at 650-808-4045, and we’ll be happy to assist you.

As always, I remind you that this conference call will contain forward-looking statements which involves certain risks and uncertainties, including statements about our product pipeline, expected benefits of our products, anticipated timing of trial results, and regulatory filings and expected financial results. Information concerning factors that could cause results to differ materially from our forward-looking statements is described further in the company’s filings with the SEC.

And now, I would direct your attention to Slide 3 and hand the call to Rick.

Rick Winningham

Thanks, Gail. Good afternoon, everyone and thank you for joining us. 2019 was a year of achievement for Theravance Biopharma across our business. We advanced our research and development stage pipeline, building a diversified portfolio of differentiated programs and we strengthened our commercial capabilities.

A key differentiator is our unique and proprietary expertise in designing organ-selective medicines that have the potential to significantly expand therapeutic index. Increase safety, increase efficacy and safety and transform the treatment of serious diseases.

Our ability to engineer and optimize drug properties has allowed us to hone in on precise organ selectivity to target the site of disease with the goal of avoiding systemic liabilities. This has driven the discovery and development of lung-selective YUPELRI for COPD, gut-selective TD-1473 and TD-5202, lung-selective TD-8236 for severe asthma, and a research pipeline of next-generation organ-selective programs. These innovative differentiated products has a potential to bring meaningful value to patients, providers and payers.

Our roster of capability enhancing partnerships continues to strengthen, with ongoing successful collaborations with Mylan for YUPELRI, Janssen for TD-1473 and TD-5202. In addition, we entered into a new agreement with Pfizer to out license our skin-selective pan-JAK inhibitor. The late night 2019 license with Pfizer was quite meaningful as Pfizer pioneered the development of medicines targeting the JAK/STAT pathway, it is ideally positioned to advance the skin-selective program, and then unlock its therapeutic potential.

These partnerships complement and expand our capabilities and enhance our potential to transform the treatment of serious disease when combined with our research engine or wholly-owned pipeline, proven development expertise and commercial infrastructure. We set the stage for a data and catalyst-rich 2020, a year we believe can deliver significant value for stakeholders.

2020 will be an important year for our company in terms of delivering data across all of our key development programs, as well as continued execution around YUPELRI. In 2020, we expect data from 1473 2b portion of the Phase 2b/3 study in ulcerative colitis and Phase 2 study in Crohn’s disease in late 2020, plus the subsequent potential opt-in decision by Janssen in 2021.

Top line results from Ampreloxetine 4-week registrational Phase 3 efficacy study in symptomatic in nOH in late 2020. In mid 2020, data from both Phase 1 biomarker study of 8236, our lung-selective inhaled pan-JAK inhibitor in moderate to severe asthma, and from the Phase 2 lung allergen challenge study, positive data from these studies would lay the groundwork for advancing to a formal Phase 2b study.

Continued development of TD-5202, our irreversible JAK3 inhibitor for inflammatory intestinal diseases also partnered with Janssen. Today, we are reporting encouraging results from the Phase 1 trial and plan to collaborate with the Janssen on next steps in development. In addition to our current clinical stage portfolio, we’ve got numerous early stage organ-selective programs that are looking promising. We’re focusing on moving 3 of those programs forward this year.

Building on this successful launch and market introduction of YUPELRI over the past year, we and our partner Mylan look forward to continuing to execute on our commercialization strategy, and strengthen our performance as measured by key market metrics, including formulary wins, total patients prescribed YUPELRI and increased access. Finally, we expect continued strong performance by GSK TRELEGY ELLIPTA, the first and only once-daily single inhaler triple

therapy for the treatment of COPD. TRELEGY ELLIPTA has had the strongest launch in the US of any GSK ELLIPTA product to-date.

And now, I’ll pass the call over to Phil, who’ll provide an update on our clinical programs. Then Frank will discuss YUPELRI commercialization strategy and execution, followed by Andrew, who will report on our financial performance and outlook with commentary on additional items, including our recently completed financing. Phil?

Philip Worboys

Thanks, Rick. Starting on Slide 6, TD-1473, is an oral gut-selective pan-JAK inhibitor designed to treat inflammatory intestinal disease directly at the site of inflammation with minimal systemic exposure or corresponding immunosuppressive effects. 1473 is in two clinical studies in partnership with Janssen. One, in ulcerative colitis and the other, in Crohn’s disease. RHEA is a Phase 2b/3 study of 1473 in patients with moderately to severely active positive ulcerative colitis.

In parallel, DIONE is a Phase 2 study in patients with Crohn’s disease. Both studies are currently enrolling patients and we look forward to reading that data from the Phase 2b portion of the ulcerative colitis study and the Phase 2 Crohn’s disease study in late 2020 to support what we believe may become a best-in-class efficacy and safety profile in the treatment of inflammatory bowel disease.

Today, we are pleased to report the results from the Phase 1 first in human study of TD-5202, our irreversible JAK3 inhibitor for inflammatory intestinal diseases also partnered with Janssen. The single and multiple ascending dose study evaluated the safety and tolerability of 5202 in healthy subjects.

5202 was generally well tolerated as a single oral dose up to 2,000 milligrams and as a twice-daily oral dose up to 2,000 milligrams total per day, given for 10 consecutive days. There were no severe or serious adverse events reported, and all treatment emergent adverse events in 5202 treated subjects were mild in severity.

Vital signs and the electrocardiogram assessments did not demonstrate any clinically significant changes from baseline and no clinically significant changes in chemistry or hematology parameters were observed post-dosing. The trial also measured the amount of 5202 in the bloodstream. Consistent with our expectations of an oral-selective – organ-selective compound, the plasma levels of 5202 in these subjects were very low.

In fact, maximal concentrations, even at the highest dose tested 1,000 milligrams twice-daily, were at least in order of magnitude below the predicted levels that may be associated with systemic activity. We believe 5202 may provide a promising additional therapeutic approach for addressing a range of inflammatory intestinal diseases. And we plan to collaborate with our partner Janssen on the next steps for development.

Let’s turn now to Slide 10, Ampreloxetine. Once-daily norepinephrine reuptake inhibitor in development for the treatment of patients with symptomatic nOH. The registrational Phase 3 program of Ampreloxetine includes two studies as depicted on Slide 11. First, the Sequoia study assesses the efficacy and safety of a 10 milligram dose versus placebo over 4 weeks in 188 patients.

Second, the Redwood study, which assesses the durability of response to Ampreloxetine by placed in 254 patients, including patients from the Sequoia study on open label treatment for 4 months and then randomizing half of the patients to placebo in a double-blind, 6-week withdrawal phase. Both studies are actively enrolling patients and the 4-weeks Sequoia study is expected to report data in late 2020.

We believe Ampreloxetine could offer distinct advantages over existed nOH therapies such as droxidopa, which carries a boxed warning for supine hypertension. Our market research shows there about 50,000 patients with nOH who could benefit from a safer and more effective therapy and/or readily accessible primarily in tertiary centers. Importantly, we plan to commercialize Ampreloxetine ourselves in the US.

Now to Slide 12, 8236. It is our lung-selective inhaled pan-JAK inhibitor in development for the treatment of inflammatory lung diseases, including steroid-resistant asthma. There’s a population of patients, particularly with severe asthma who are so called T2-low, rather than T2-high inflammation. And most of these patients don’t benefit from either steroids or from biological agents. We believe there is an opportunity with 8236 to treat patients, regardless of T2 phenotype and ideally 8236 could be used as an inhaled alternative to steroids before these patients progress to biologics.

As reported last year, initial results from the Phase 1 multiple and single ascending dose studies were encouraging. 8236 was generally well tolerated as a single inhaled dose, up to 4,500 micrograms in healthy subjects. And as a once-daily inhaled dose of up to 4,000 micrograms given for seven consecutive days in patients with mild asthma.

Turning to Slide 14, an additional objective of the Phase 1 MAD study was to determine biological evidence of an anti-inflammatory effect in the lungs of these mild asthma patients. We achieve this by measuring reductions in fractional exhaled nitric oxide or FeNo and established disease activity biomarker in asthma. Over the seven days of 8236 administration, these patients experienced reductions in FeNo compared to placebo at all doses above 150 micrograms.

Based on these encouraging study results, we are conducting a policy extension portion of this Phase 1 trial in patients with moderate to severe asthma. These patients represent the population that would ultimately be most likely to benefit from 8236. In addition to providing further opportunity to measure the effect of 8236 on FeNo, these patients are also consenting to having bronchoscopies so we’ll be able to sample the cells and fluid in the lungs to look at additional markers of inflammation, and we expect to see data mid 2020.

In parallel, we are also conducting a lung allergen challenge Phase 2 study. This is a mechanistic study in which patients inhale an allergen, which provokes an exacerbation-like response in the lung under controlled conditions, and is often accepted as a strong proof-of-concept in predicting a reduced risk of exacerbations in patients with asthma. Results of this study also expected mid 2020.

We have numerous early stage organ-selective programs and we are focusing on moving three forward this year. Firstly, our inhaled nebulized lung-selective pan-JAK inhibitor intended for the prevention of lung transplant rejections and other serious inflammatory conditions of the lung, which we hope to bring to clinic by midyear.

Secondly, our inhaled nebulized lung-selective ALK5 inhibitor intended for idiopathic pulmonary fibrosis. We are aiming to have this program in clinic towards the end of the year. And thirdly, our intravitreal eye-selective pan-JAK inhibitor intended for diabetic macular edema. We are currently conducting long-term toxicity studies for this compound with a goal of advancing it to the clinic upon completion. We look forward to providing updates on these early stage programs as they progress towards the clinic.

So next, Frank will provide an update on the US commercial launch of YUPELRI.

Frank Pasqualone

Thanks, Phil and good afternoon, everyone. Starting with Slide 19, we are concluding the first full commercial year since launch of YUPELRI and we’re pleased with customer acceptance and brand performance. YUPELRI is the first and only once-daily, nebulized long-acting muscarinic antagonist that provides a full 24 hours of control for patients, having gained FDA approval at the end of 2018 for the maintenance treatment of patients with COPD.

Turning to Slide 20, remember that in our commercial strategy with Mylan, we focus on the institutional setting, while Mylan covers the outpatient COPD treatment segment. There are about 800,000 patients admitted each year to US hospitals for worsening of their COPD. About half of those patients leave the hospital with a prescription for nebulized therapy, making the hospital a promising setting to convert patients from competitive products to YUPELRI.

Importantly, there are additional COPD patients that are routinely hospitalized for other conditions, unrelated to a worsening of their COPD symptoms, but who require maintenance therapy for their COPD while hospitalized and these patients may represent an additional opportunity for conversion and treatment with YUPELRI.

Critical to successful implementation of the strategy is to have the patient remain on YUPELRI for maintenance treatment of their COPD following discharge from the hospital. This is best achieved through a cooperative strategy at the field level between Mylan and Theravance Biopharma representatives. Due to diligence and training and preparation between the two companies, this cooperation is working well and we believe it will continue to play an important role in the future success of YUPELRI.

As shown on Slide 21, we’re tracking key performance metrics, including formulary reviews and wins, patient uptake and market access. By the end of the fourth quarter, we continued to observe strong customer response and market acceptance.

Through the end of the year, we achieved 85 formulary wins, which equates to 220 hospital accounts, 70 reviews are underway or scheduled by the end of the first half of 2020, representing more than 400 potential new hospital accounts, and we provided exceptional medical information support to the field, with 100% of healthcare provider requests fulfilled in under 30 days.

We estimate that through fourth quarter, more than 30,000 patients have been prescribed YUPELRI since launch. Since launch, our hospital-focused sales team has conducted over 61,000 healthcare providers sales calls, reaching approximately 90% of our currently targeted institutional accounts.

Now turning to our marketing efforts, and the impact on marketplace perceptions and prescribing behaviors, our marketing research data as of October 2019, show that YUPELRI achieved an 86% share of the nebulized LAMA market and a 10.7% share of the long-acting nebulized market, including the DME market.

Based on more recent marketing research, YUPELRI has used primarily in patients with an average age of 68. Three quarters of YUPELRI patients have a low peak inspiratory flow rate or PIFR and approximately 90% of patients on YUPELRI are in their later years of COPD, about 10 years after diagnosis. This is as expected as these are classic nebulized patients.

We’re also pleased with the awareness level of YUPELRI among pulmonologists in both the hospital and community office settings. Over one half of targeted office-based pulmonologists and approximately 40% of targeted hospital pulmonologists currently prescribed YUPELRI and approximately half of YUPELRI patients are using the product in combination with other long-acting agents.

Turning to market and patient access, with respect to Medicare Part B patients, the early granting of a permanent J-CODE for YUPELRI has made a meaningful difference in facilitating reimbursement in the outpatient setting, and importantly, simplifying the fulfillment process for pharmacists and patients.

Traditional Medicare, which represents nearly 80% of the YUPELRI patient population has been filling and reimbursing prescriptions more smoothly since the permanent J-CODE was awarded. Medicare Part D open enrollment started October 15th, 2019 for the 2020 year and Part D coverage only applies to YUPELRI after 100 days in a long-term care facility setting, making up about 6% of the YUPELRI patient opportunity.

Coverage to-date from major commercial insurance plans has been positive. Medicaid covers most products in the nebulized class and requires prior authorization, but does not hinder a Medicaid patient from access to YUPELRI.

From launched through the end of 2019, YUPELRI is increasingly becoming an accepted source of potential relief for those patients in need of nebulized therapy for the maintenance treatment of their COPD. We believe that YUPELRI is delivering on its brand promise and has significant marketplace potential for growth.

We’re only one year into the life of YUPELRI, but we are pleased with our performance to-date, and believe we are well positioned to continue to drive adoption and to build upon the strong base of target prescribers and payers that we have established so far.

Now I’ll pass the call over to Andrew for a financial update.

Andrew Hindman

Thank you, Frank. I’ll begin with our financial results for 2019, then cover our financial guidance for 2020 and close with a brief update on our recent financing activities. Starting on Slide 22, revenue for the fourth quarter of 2019 was $29.5 million, comprised of collaboration revenue of $9.6 million, primarily attributed to the amortization of the upfront payment from Janssen for TD-1473. Licensing revenue of $10 million related to the upfront payment from Pfizer for rights to our skin-selective pan-JAK inhibitor program, and revenue from the Mylan collaboration agreement of $9.9 million.

Revenue for the fourth quarter represented $13.8 million increase over the same period in 2018. The increase was primarily due to licensing revenue associated with the upfront payment from Pfizer, and an increase in revenue from the Mylan collaboration agreement, partially offset by a decrease in product sales, which resulted from the sale of VIBATIV to Cumberland Pharmaceuticals in late 2018.

Full year 2019 revenue was $73.4 million, comprised of collaboration revenue of $31.3 million primarily associated with our global collaboration with the Janssen, licensing revenue of $28.5 million related to upfronts from Pfizer and Mylan, and revenue from the Mylan collaboration of $13.7 million.

R&D expenses for the fourth quarter of 2019 were $67 million, compared to $52.3 million in the same period in 2018. The increase was primarily due to an increase in employee related costs and share-based compensation related to long-term retention and incentive rewards, plus external related costs associated with the progression of our key programs.

Full year 2019, R&D expenses were $219.2 million, while $190.3 million excluding non-cash share-based compensation. SG&A expenses for the fourth quarter of 2019 were $33 million, compared to $25.5 million in the same period in 2018. The increase was primarily due to an increase in share-based compensation related to long-term retention and incentive awards.

Full year 2019 SG&A expenses were $106.1 million or $74.6 million excluding non-cash share-based compensation. We ended the year in a well capitalized position with approximately $285.8 million in cash, cash equivalents and marketable securities.

I’ll now turn to our financial guidance. For the full year of 2019, we incurred an operating loss, excluding share-based compensation of approximately $192 million, which was below our stated guidance range of $200 million to $210 million. The variance was driven by the $10 million Pfizer upfront which was not factored into our guidance for the year.

Turning to 2020, we expect full year operating loss, excluding share-based compensation in a range of $205 million to $225 million. The operating loss guidance does not include royalty income for TRELEGY ELLIPTA, which we recognize in our statement of operations as income from investments in TRC LLC or potential future business development collaborations, as well as the timing and cost of clinical studies associated with our key programs, among other factors that could impact the financial guidance.

I’ll now direct your attention to Slide 24, and provide an update on GSK’s TRELEGY ELLIPTA, the first and only once-daily single inhaler triple therapy approved for the treatment of COPD, for which Theravance Biopharma holds an economic interest that equates to an upward tiering royalties of approximately 5.5% to 8.5% a worldwide TRELEGY sales, net of expenses. As a reminder, 75% of the income from our investment in TRC is pledged to service outstanding notes and 25% of the income from our investment is retained by Theravance Biopharma.

Sales of TRELEGY for COPD continue to grow. The product is now available in 38 markets with additional geographies expected in the fourth quarter, including China. In October GSK announced that it had submitted a supplemental NDA for TRELEGY in asthma. Previously GSK announced it had submitted a regulatory filing in support of the revised labeling for TRELEGY, on reduction in risk of all-cause mortality compared with Anoro in COPD patients. There is an FDA advisory committee meeting scheduled for April 21st, 2020 related to this application. The addition of an asthma indication as well as a mortality claim in COPD could result in meaningful expansion for the use of TRELEGY over time.

Finally, regarding recent financing activities, we announced on February 11th, 2020, that we closed our public offering of 5.5 million ordinary shares at a price to the public of $27 per share. The gross proceeds to Theravance Biopharma from the offering are approximately $148.5 million, before deducting underwriting discounts and commissions and estimated offering expenses.

In addition, we disclosed in February that we’re in advanced discussions with a limited number of investors to explore alternative financing strategies with respect to the company’s existing $250 million non-recourse 2033 notes.

We have recently entered into note purchase agreements with certain lenders to, among other things, issue $400 million in notes on broadly comparable terms and we have since provided notice of optional redemption to the existing noteholders of the 2033 notes, contingent on the closing of the new transaction. Issuance of the notes is subject to the satisfaction of customary closing conditions in the near future. We will look forward to providing additional details in the future.

And now I will turn the call back over to Rick for closing remarks.

Rick Winningham

Thanks Andrew. At Theravance Biopharma, our mission is to create transformational value for all of our stakeholders. Our key assets are a strong research engine feeling a rich and diversified pipeline of organ-selective assets backed by a proven development and commercialization expertise and high quality strategic partnerships all supported by a strong capital position, which includes our economic interest in TRELEGY ELLIPTA royalties and a commercial asset, YUPELRI. All this taken together has enabled us to create an exciting lineup of program milestones and value-driving catalysts in 2020 and beyond.

Important upcoming milestones include additional US commercial launch metrics for YUPELRI and COPD, progression of our late-stage clinical studies of Ampreloxetine and 1473, with important data readouts by the end of 2020. Continued advancement of early-stage compound, 8236 plus additional novel organ-selective research programs entering the clinic over the next 12 months to 18 months.

And finally, further commercial and regulatory progress by GSK for TRELEGY, including FDA decisions on an sNDA for a mortality claim in COPD, and an sNDA for an asthma indication in 2020. This is a pivotal time for Theravance Biopharma and we appreciate the opportunity to share our progress with you.

And now I’d like to hand the call back over to the operator for questions.

Question-and-Answer Session


Thank you, sir. [Operator Instructions] And our first question comes from Geoff Porges with SVB Leerink. Your line is open.

Andrew Berens

Hey, thanks for the question. This is Andrew on for Geoff. And I have a question for 1473. Now you indicated you know, the JNJ it is this and will be in – probably late 2020 or early 2021. So how does that affect your cash burn in the future you know, so the capital requirement is going forward? Thank you.

Rick Winningham

Thanks, Andrew, this is Rick Winningham. Well, clearly what we’re establishing is a, you know, is a multiyear capital base to enable us to recognize the promise of our pipeline. You know, we’ve – in the call today said that we expect data in linked 2020 for 1473, the 2b study in ulcerative colitis in the Phase 2 study in Crohn’s.

The way the opt-in works as we deliver the data from those two programs to JNJ and then they make the decision within a within a specific period of time around 90 days on whether they want to opt-in or not, an opt-in decision by them carries with it a $200 million milestone which should obviously strengthen that our capital base at that particular time.

So that’s sort of the sequence of events right now, certainly with the existing cash balance with the added cash to the – from the equity deal that we completed this month and then potentially the completion of the note refinancing we’ve got adequate capital for a number of years to, again to recognize the promise of our pipeline.

Andrew Berens

Thank you. That’s helpful.


Thank you. Our next question comes from Louise Chen with Cantor. Your line is open.

Louise Chen

Hi, thanks for taking my questions here. I had a few of them. First question I have for you is on TRELEGY ELLIPTA, if you get this mortality benefit and the approval for asthma, how much could this drive incremental upside to sales? It seems like it could be orders of magnitude, but wanted to see if you could elaborate a little bit more here? And then for the upcoming Adcom, what are you expecting this to cover? And how are you preparing for it? And the last question is on you have some important data readouts coming out for TD-1473 at the end of the year and will you report both data sets for UC and Crohn’s together or just depend on the timing. And if all goes as planned as Janssen or Janssen have until 2021 or when in 2021 to exercise and will you – was that exercise amount still going to be $200 million? Thank you.

Rick Winningham

Yeah, so this is Rick. I’ll just cover very briefly the TRELEGY questions and then let you know, let Brett cover the – who’s actually joining us, let Brett cover the 1473 readouts. So TRELEGY obviously, Louise we you know, we’re distant from this on relative to GSK. We don’t have any information that the market, you know, doesn’t have.

As we looked at – look at it just from an outside observation, clearly the asthma indication for the – in the United States would make a significant difference to the total peak sales of technology. You know, whether it’s orders of magnitude, I don’t know whether the asthma alone is orders of magnitude, but it’s a fairly significant increase to, you know, peak sales, as you know, we would just roughly think about 50% to 60% on peak something like that.

Mortality, well there isn’t another – in COPD mortality, there isn’t another product with a mortality claim in COPD. So, you know, you’re probably looking at a pretty meaningful upside there. They’re coming both from initial treatment, but also from potentially persistence of treatment with TRELEGY. So needless to say, I think – both of these indications would provide certainly quite meaningful upside to baseline projections right now that, you know, that we have with TRELEGY.

The Adcom, I don’t have any idea or any insight at all on what the Adcom will talk about. It’s you know, obviously, it’s on the FDA website, it’s TRELEGY versus Anoro from the impact study and I think GSK probably over time will have a better perspective on what those discussions will be.

So, Brett, we’ll bring you in here to talk about the readouts from 1473.

Brett Haumann

Sure. Thanks, Rick and hi Louise. Just one last comment on TRELEGY actually and that’s – I’ll remind you that BREO initially was approved only in COPD. And so you may want to go and look at that in terms of some indication at least of an analogue of what happened when the asthma indication was introduced secondarily. Of course, BREO’s launch wasn’t nearly as successful as TRELEGY. So the absolute magnitude could be different, but at least you’ll be able to reference that BREO’s sales curve in terms of the initial COPD, and then the latter asthma impact.

You asked about 1473. And really, it’s going to be a function of when each of these studies readouts as to whether we report them together or separately. Right now, enrollment is tracking neck and neck for the two studies. They’re very close together in terms of their predicted outcome and readouts by the end of this year. Of course that’s always subject to recruiting the very last patient that’s needed for each of those studies. So until we have that certainty, I wouldn’t be able to directly answer your question, but I think you should expect to see these data sets either together or very close together in terms of their readouts.

In terms of when Janssen would sort of make their decision contractually, they have a 90-day period after the second of the two datasets is available to inform their decision of opt-in. And that triggers the $200 million milestone. They do have the opportunity to consider one or other of the two datasets so they could make their decision on the first of the two, our expectation is they’re likely to look at both datasets to inform their decision.

Louise Chen

Okay, thank you.


Thank you. And our next question comes from Alexander Duncan with Piper Sandler. Your line is open.

Alexander Duncan

Hey, thanks for the question. The partnership with Pfizer and the skin localized JAK inhibitor is pretty interesting. Could you provide any additional information on how your approach or mechanism can be differentiated from inside topical reps program? Thanks.

Rick Winningham

Yeah, I’ll answer that and then maybe ask Phil to comment a bit. You know, our approach with the skin program was much like our approach with any other organ system, is that we were, you know, we were developing compounds specifically to work in the skin. And this, I think is different from other topical programs, where compounds may have been repurposed or selected out of other programs and then applied to the skin. Phil?

Philip Worboys

Yeah, I think that’s the key feature of how we approach or kind of selectivity is, we designed the compounds from scratch for the organ that we’re intending them to go for. So as part of that, we consider the type of patients that we would, you know, want to be treating, and also how we would then administer that compound. So, what is the type of formulation and the breadth of formulations that we’d want that compound to be amenable to.

So rather than we purpose in a molecule, where you could be constrained by, you know, the features of that molecule probably initially, they were intended for all systemic availability. We designed our compounds from scratch for to be organ selectors. So whether it’s the physiochemical properties, the metabolic properties, you know, all of that and that was what really Pfizer were focusing in on is, you know, the features that were designed in from the beginning that would lend itself to, you know, the broadest range of skin applications possible.


Thank you. And our next question comes from Josh Schimmer with Evercore. Your line is open.

Josh Schimmer

Thanks for taking the questions. First on the JAK3 program, it looks like the dose is much higher than 1473, the pan JAK at least that you’ve explored in the early testing phase, which dose are you planning to advance and is there a reason why the dose that you’ve explored so far is higher than 1473?

Philip Worboys

Yeah, this is Phil again. So I wouldn’t read into the dose range that we described as being predictive of where we think efficacy is. This is a Phase 1 study and healthy volunteers where we purposefully push the dose, because here we’re trying to establish, you know, the safety window. So, we want to explore as high as is, you know, reasonably possible to understand the sort of dose range, we have to then go into a patient efficacy study. So, we want a window above where those, you know, doses would be in a patient study, so it’s not indicative of where we think efficacy is, the fact that we went up to 2,000 milligrams.

Rick Winningham

I think the other point is, you know, as we’re looking at potential, you know, conditions and we’ve referenced celiac before. I mean, clearly, you know, to – for celiac and to treat celiac patients, we knew we were going to have to have a very, very safe program all the way around. You know, we’ve obviously learned things as we’ve gone through, I think when Phase 1, we test a fairly high dose of 1473 and then backed off of that considerably for, you know, for the efficacy studies.

And here we were just simply, you know, we were able to get in and a very high dose, you know, over 10 days with, you know, really seeing, you know, almost nothing from a safety perspective, but due to the fact that the drug is absorbed into the, you know, into the gut, and in then it’s metabolized through first fast metabolism. So, we’re pretty excited about where we ended up here with – you know, we got to anticipate to be pretty large window of margin of safety.

Josh Schimmer

The next there was a steep inflection in operating expenses to lesser extent of stock-based comp. You gave some hints of these trends in the guidance for 2020 but maybe can you provide a little bit more color as to which of these now represent new base – baseline levels for Merck company? Future growth or which we might see a pullback in subsequent quarters?

Rick Winningham

Well I’ll make a couple of comments and turn it over to Andrew. If you look at sort of where we are in the evolution of, you know, of cash, cash flow dynamics for the company, you know, clearly we’re, you know, we’re looking at, you know, right now and what we would see as potentially peak uses of cash, you know, cash coming through expenses, through the income statement, and then as, as we’ve said before, we would expect YUPELRI to be in a given quarter cash flow positive for us this year and then hopefully with continued success in 2021 turning positive for us. But you know, we really look at the financing that we’re – that we’ve done as, you know, really enabling this multiyear capital base so that we’re you know, don’t need to come back to the markets for additional capital or given the cash flow characteristics of the company. Andrew?

Andrew Hindman

Yeah and specifically, Josh with respect to questions on trends around non-cash comp, happy to take it offline with you to go through the historical there and address any follow-up questions.

Josh Schimmer

Okay. Thanks very much.


Thank you. And our next question comes from Marc Frahm with Cowen. Your line is open.

Marc Frahm

Yes. Thanks for taking my questions. Maybe just first, a follow-up on the comment you gave to Josh’s question on the guidance. You mentioned the idea here with the race that you did, and I guess the, you know, the potential debt offering you’ve described is to not come back to the market again for additional capital, is that just in terms of equity or that also inclusive of debt other than the one that you talked about on the call earlier?

Rick Winningham

Well, I think, you know, with the capital races that we’re talking about, we think we’re in a, you know, pretty strong, you know, multiyear position with regard to capital base. So, certainly, you know, this, you know, this equity raise that we did, you know and was seemed to be certainly adequate and should we complete the note – notes that we’ve got out – you know, under consideration, then we’re going to be in a very, very strong cash position for what we would think would be multiple year. So, Andrew, anything else to say on that?

Andrew Hindman

Yeah that capital raise in addition to the underlying dynamics of YUPELRI going to generate and starting to generate cash on a brand basis that – that’s including all associated expenses related to commercializing YUPELRI. The only other thing I would add is that, you know, we wouldn’t take off the potential for strategic transaction related financing, but those are, you know, the scenarios where we would come back specifically with a very clear use of proceeds regarding any financing related to that.

Marc Frahm

Okay, great, thanks. And then in the prepared remarks about YUPELRI, I mean one of the things you’ve mentioned here in earlier times is the important to transitioning people from that initial experience in the institution with – institutional setting with your salesforce versus once they leave to go to the chronic setting with the Mylan’s salesforce? Is there any metrics you can give us on kind of the conversion rate and, you know, how many people that you get on drug in the hospital actually convert to a chronic setting?

Rick Winningham

Well, the only numbers that we’ve talked about has been total patients prescribed, which is that, you know, as of the end of 4Q was 30,000 patients prescribed. We don’t have any more granularity that we can share. You know, we’re hopeful, I think looking at, you know, looking at the opportunity here in the hospital, you know, this is 800,000 patients today and as Frank mentioned, half of those patients today walk out of the hospital with a prescription for nebulized therapy.

I think that choice of nebulized therapy is really often driven by the action that the hospital takes when the patient is there, that’s what market research shows and we do have – we do know that we’re making substantial progress. And I don’t want to quote any numbers, but we do know we’re making substantial progress, that once a patient gets prescribed YUPELRI in the hospital that there’s high probability of that patient walking out with an outpatient prescription for YUPELRI.

I think overall, the strategy that Frank outlined, is working. It’s working well and we just need to keep moving up the efficiency and the effectiveness curve. Frank, is there anything else you want to add to that?

Frank Pasqualone

Yeah, Rick, I would just say that this is a critical, critical part of the commercial plan. And it’s a part of the commercial plan that we spend an enormous amount of time on. We spend an enormous amount of time on the coordination between head office and head office, but most importantly, there’s a lot of coordination that’s done in the field in terms of patient journey, which physicians are serviced by which hospitals, numbers of patients coming out, patient comments, we know from our marketing research that patients that are prescribed YUPELRI very satisfied with it. And in some cases are asking to stay on it, once they leave the hospital.

I heard that I was out in the field three weeks ago and I heard that for myself, as well as just I can tell you while I was in the car riding around with our sales representative, he had four different calls with his Mylan counterpart. So this is a very, very important part of the commercial model. It’s one that we spend a lot of time and a lot of coordination on.

Marc Frahm

Great, thanks. And then maybe one on the pipeline. You’re going to get these data updates for 8036 and maybe just kind of help frame how we should look at the data. Where do you think the real competitor is? Do you need to be absolutely – start looking absolutely every bit as good as the biologics or do you think there’s a place for also just maybe a little bit less efficacy, but you’ve got less you know safety risk with being lung restricted and oral?

Rick Winningham

Brett, do you want to cover that and then we’ll go back to Phil.

Brett Haumann

Yeah, so I think we’re likely to look at different magnitudes of response in the different population. Phil mentioned earlier on, there’s T2-high population that we’re interested in. These are patients who remain symptomatic on steroids or inhaled steroids, and then a moved over to biologics with or without oral steroids. In that population, I think what we’re really interested in is maximizing the efficacy that can be achieved with an inhaled product before those patients have moved over to biologics.

And so really what we’re looking to do is enhance and stabilize the more severe patients using an alternative to inhaled corticosteroids that would achieve that control. We know that patients remain poorly controlled, despite being entirely compliant on inhaled corticosteroids. And so there’s an opportunity for more efficacy before we shift those patients over to biologics.

For T2-low patients, I think there’s an even greater opportunity. There, the biologics are not known to work, they don’t have the efficacy, and they – those patients really have no alternatives. So again, our aspiration there would be to control them to get the stability of their symptoms under control, knowing that they aren’t able to benefit either from steroids or from biologics.

In terms of the magnitude of effect, I think the allergen challenge study will give us a very good early indication. Bear in mind that this is an experimental model that tries to provoke large insults in the lung an inhaled allergen, which stimulates a significant outpouring of inflammatory markers. If we’re able to see similar attenuation of that allergic response to what is reported with inhaled corticosteroids and with biologics, that will be a very good early indicator that will likely to reduce exacerbations in the wild. Ultimately, what’s likely to be the approval endpoints in Phase 3 will be a reduction in the rate of exacerbations on an annual basis, as has been seen and reported with other programs such as dupilumab and tezepelumab.

I’ll pass over to Phil, if he has any additional comments.

Philip Worboys

Yeah, I think when you look at Slide 13, the panel on the right which has the table of the T2-high and the T2-low JAK/STAT cytokines. That really sums up the proposition we’re going for, is, you know, we should be able to modulate of those cytokines through the pan-JAK nature of 8236. So we would cover all the phenotypes, hopefully that exist in asthma. And certainly those patients on the T2-low side, which aren’t well controlled, you know, they carry a large healthcare burden in terms of utilization of healthcare. And, you know, the hope is to position our molecule so we can cover the breadth of patients, obviously with the efficacy of biologics or steroids, and hopefully beat them, because we should be able to dose up nicely, because we won’t be carrying the systemic liabilities but any oral JAK agent, and having the carriers, because you know, how it’s administered through the oral route.

Rick Winningham

Just one more point to add, because I’ve had to just reinforce this with, you know, a number of different people, which is that when you look at the FeNo data that we’ve presented, that FeNo data is in mild asthmatics I think, you know, this was particularly encouraging that we saw a FeNo response in mild asthmatics and that what we were looking for was simply a lack of bronchospasm. We wanted to make sure its formulation was – that formulation was adequate for further development and well and we didn’t see bronchospasm in these patients, but we did – we also saw this improvement in FeNo.

So, this was pretty encouraging to us given that this was in mild asthmatics and, you know, certainly in the range of what you see with other agents, when mild asthmatics had been treated historically. So, we’re pretty excited about 8236. We’re, you know, looking forward to the middle of the year when we can get the lung allergen challenge as well as the biomarker data in hand.

Marc Frahm

All right, Thank you.


Thank you. And our next question comes from Alan Carr with Needham. Your line is open.

Alan Carr

Hi, thanks for taking my questions. A couple of them here. Rick can you, I guess, elaborate on what’s next for 5202? Do you have to essentially have to wait until after the 1473 data are available from the next few trials and JNJ makes an abstinent decision on that before we just have 5202? And then Frank, can you talk some more about YUPELRI? Can you give us a sense on the relative contribution of inside the hospital versus maintenance setting outside the hospital to sales? And then the last one is around the three programs that you’re planning to submit an INDs for this year? Is it your intention to develop and commercialize those in-house? Thanks.

Rick Winningham

Yeah, I’ll cover 5202 and the INDs and let Frank cover YUPELRI. You know, 5202, yeah, I think what – we don’t need to wait with the Janssen in terms of mapping a path forward with 5202. It would be kind of inappropriate to think about the Janssen-Theravance Biopharma relationship is – you know, Janssen somehow waiting for us to throw that 1473 data over the wall to them really that the Janssen-Theravance partnership today it’s been extraordinary collaborative you know literally on a day-by-day basis. You know, they obviously have the 5202 data now and the 5202 teams are planning what you know, what comes next with 5202, you know, independent really of what’s happening with 1473.

On the INDs, I mean clearly the, you know, the first one in the queue is going to be the nebulized JAK inhibitor that we’d look to take that all, you know, all the way and then next will be the five inhibitors for idiopathic pulmonary fibrosis. That’s a terrifically exciting program. And I think all the programs, you know, going forward, our first option is to carry these programs forward in the US by ourselves.

And then the inter – the third and the queue is the intravitreal JAK program as Phil mentioned, this is a long-term tox studies, because of the long half-life of the drug, we really have to complete the long-term tox studies before we go into man. And, you know, I think that’s probably not an IND this year, but it’s probably in 2021.

But nonetheless, you know, we’re quite excited about it, because if we can, the compound can survive through the long-term tox study, then it should progress relatively rapidly after that, because we’re – having to wait on safety studies as you sometimes do before you progress compounds to the next stage of development. So that’s sort of what the way we’re looking at it going forward with these next three, as well as the answer on 5202, and then I’ll turn it over to Frank to talk about the importance of the hospital business as it relates to the outpatient.

Frank Pasqualone

Yeah, thanks Alan. We do see the hospital segment as very, very critical to the future success of YUPELRI. Again going back to the 800,000 patients that cycle through the hospital on a yearly basis. I mean, we kind of look at that as similar to a DTC program where you’re trying to drive patients into the hospital. This is a venue where the patients actually come to us and they are therefore us to convert them in the hospital and importantly send them back out into the community on YUPELRI.

The primary audiences for us are pulmonologist hospitalists and hospitalists and these pulmonologists as you know, when they service a community, they’ll see patients both in the clinic or outpatient setting as well in the hospitals. And so the increasing level of experience that we’re getting – that these pulmonologists are getting and I referred to that in my remarks is increasingly trickling out into the community.

So we see the hospital setting as important, because it’s an important patient capture both of those – both for those patients that come in with issues with their COPD and perhaps those that come in with for elective procedures or something like that. But we see it as – and it’s critical as to the sustainability of the YUPELRI franchise going forward.

I mean, YUPELRI is very easy given in the hospital or given in the even given in the community, it’s once-daily, it provides a full 24 hour coverage. It can be used in a standard JAK nebulizer. And really, it’s the only once-daily neb LAMA right now and it’s going to be the only one for quite some time. So we see this as an investment opportunity and we see this as a way to send patients back out into the community.

When you look at how sales are built, the community is the – is an important and probably the more important, because we’ll get patients on YUPELRI for whatever two days, three days, four days, whatever our goal is to get them back out into the community, keep them on YUPELRI and they become a bit of an annuity for us.

Rick Winningham

Yeah, when you’re looking at numbers, Alan you know, COPD is probably are, you know, there’s about 16 million US residents that have been diagnosed with COPD. So, you know, this is a, you know, this is a large, unfortunately for the help – for the patients and for the system, this is a large, large, very highly prevalent condition. Obviously, you’ve – we look at 10% of those patients really being candidates for nebulization.

You know, which, with –in fact, if you look at PIFR data, low peak inspiratory flow, it may be more than 10% of patients that could be – that would be more optimally treated with nebulizers. But then, you know, you’re down to about 800,000 patients that cycle through the hospital every year and about 400,000 of those patients today routine leave the hospital with a prescription for nebulization, this is before the YUPELRI launch.

So, you know, this is a very, very significant opportunity for the company and for Mylan are given that what we’re talking about is, gold standard therapy in a once-daily nebulized long-acting muscarinic antagonists. So you know, it’s – we’ve got a – we got a lot of work to do and we’re just really getting started. And as Frank said, the ultimate objective, of course is to have to treat patients in the community with YUPELRI as such that they can maintain control of their COPD and in fact, stay out of more costly places of healthcare.

Alan Carr

Can you say at this point, what percentage of the revenue is in-patient versus out-patient maintenance or no?

Rick Winningham

No, we can’t say, it’s – you know, I think it’s probably a relatively small percentage of the total sales and we would expect over time for it to be a relatively small percentage of the sales, But as Frank said, it’s a place where you can catch patients and, you know, we catch the 800,000 coming through. We know where these hospitalizations are, this allows for very targeted work in terms of both medical and commercial work and getting patients who may be on, you know, a four-time a day nebulizer on to a once a day nebulizer really, you know, both helps their breathing but also really changes their, you know, changes their life.

Alan Carr

Great. Thanks for taking my questions.


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

Rick Winningham

Yeah, I’d like to thank everybody for joining us today. It’s been a great pleasure to update everyone on the progress that we’ve made. We’ve got a very special year ahead of us in 2020. And we look forward to updating you as the year goes on. Thank you very much.


This concludes today’s conference call. We thank you for your participation. You may now all disconnect. Everyone have a great day.

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