Rick Winningham - Chief Executive Officer Brett Haumann - Chief Medical Officer Jessica Stitt - Vice President of Finance Alex Dobbin - Head of Investor Relations

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the Theravance Biopharma Conference Call. [Operator Instructions] Today's conference call is being recorded. And now I’d like to turn the call over to Alex Dobbin, Head of Investor Relations. Please go ahead.

Great! Thanks Jonathan. Good afternoon, everyone. Thank you for joining our conference call and webcast to discuss our fourth quarter and full year 2018 financial results and business outlook. Joining us are Rick Winningham, Chief Executive Officer; Brett Haumann, Chief Medical Officer, and Jessica Stitt, Vice President of Finance. Following some prepared remarks we'll 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'll remind you that this conference call will contain forward-looking statements which involve certain risks and uncertainties, including statements about our products pipeline; expected benefits of our products; the 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'll direct your attention to slide three, and hand the call to Rick.

Thanks Alex. Good afternoon everyone and thank you for joining us. We entered 2019 with great momentum in pursuit of our strategy to discover develop and commercialize, transformational organ-selective medicines with the potential to optimize both safety and efficacy in patients with single-organ diseases. This represents a highly differentiated approach versus systemic agents. 2018 was a very productive year on all fronts. In February of last year we entered into a global collaboration with Janssen for TD-1473, our gut-selective pan-JAK inhibitor in development for the treatment of inflammatory intestinal diseases. Following completion of the phase 1b study in patients with active ulcerative colitis and after consultation with regulators on study designs, 1473 progresses towards a registration Phase 2b/3 study in ulcerative colitis and a Phase 2 study in Crohn's disease. In August we announced positive four weak results for Ampreloxetine in treating patients with neurogenic orthostatic hypotension, including evidence of durable improvements in their key symptoms, laying the groundwork to engage with regulators on the design of the registration Phase 3 program, and that Phase 3 program is now underway. In November we and our partner Mylan achieved FDA approval for YUPELRI, the first and only approved once-daily, nebulized bronchodilator as maintenance treatment for patients with COPD and formal launch efforts are now under way. 1473 Ampreloxetine and YUPELRI are priority programs in 2019, each as an example of the unique research approach of Theravance Biopharma, translating to differentiated late stage programs, which have the potential to offer meaningful benefits to patients, caregivers and payers. At our R&D day in December we shared our innovative research and development strategy of organ selective medicines. Our approach is designed to enhance the therapeutic index beyond that of conventional therapies in diseases that affect single-organs. As shown on slide four, we address the…

Thanks Rick. I'll begin on slide eight with YUPELRI inhalation solution, a once-daily nebulized LAMA for the treatment of COPD. YUPELRI was approved by the FDA at the end of last year for the maintenance treatment of patients with COPD. YUPELRI is the first and only once-daily nebulized bronchodilator approved for the treatment of COPD in the U.S. For the first time COPD patients who require or prefer nebulized therapy can access a once daily nebulized bronchodilator for the first time and benefit from consistent 24 hour lung function improvement with the convenience of once-daily dosing delivered through any standard jet nebulizer. YUPELRI achieved first cycle approval prior to the PDUFA date and without any requirements for an advisory committee review. We were also pleased to have the higher of two doses approved on the basis of a more favorable therapeutic index, aligned with our strategic goals for organ selective therapy. The data from our pivotal registration program was presented as a number of key scientific meetings in 2018, including ATS, ERS and CHEST and the publication manuscripts of the Phase 3 studies remain on track to be published this year. Turning to slide nine, we estimate that approximately one in 10 COPD patients currently use nebulizers for ongoing maintenance therapy, with an additional 40% of COPD patients using nebulizers at least occasionally for bronchodilator therapy. We also know that there are about 800,000 patients admitted each year to U.S. hospitals for vesting of their COPD and about half of these patients leave the hospital with a prescription for a nebulized therapy. All of these elements shape our commercial strategy in partnership with Mylan. Theravance Biopharma already has an established commercial presence in and around acute care centers, which gives us the opportunity to focus on patients in the hospital…

Thank you, Brett. I'll begin with our financial results for 2018, then cover our financial guidance for 2019 and close with a brief update on our economic interests related to Trelegy Ellipta. Starting on slide 13, revenue for the fourth quarter of 2018 was $15.7 million comprised of collaboration revenue primarily related to our global collaboration agreement with Janssen for TD 1473 of $10 million. Profit sharing revenue related to YUPELRI of $3.3 million and product sales for VIBATIV of $2.4 million. Revenue for the fourth quarter of 2018 represents an increase of approximately $11.2 million over the same period in 2017. The increase was primarily related to revenue recognized from the upfront payment associated with the global collaboration agreement with Janssen for 1473. The increase was partially offset as a full quarter of Product Sales was not recognized due to the sale of VIBATIV to Cumberland Pharmaceuticals in November 2018. Revenue for the full year 2018 was $60.4 million, comprised of collaboration revenue of $41.8 million, primarily associated with the upfront payment from Janssen for 1473, and product sales of VIBATIV of $15.3 million. R&D expenses for the fourth quarter of 2018 were $52.3 million, compared to $51.1 million in the same period in 2017. The increase was primarily due to higher external expenses to support our key programs and was partially offset by lower employee-related and share-based compensation expenses. Full year 2018 R&D expenses were $201.3 million, or $175.8 million excluding share-based compensation. SG&A expenses for the fourth quarter of 2018 were $25.5 million, compared to $29.5 million in the same period in 2017. The decrease was primarily due to lower expenses related to share-based compensation. Full year 2018 SG&A expenses were $97.1 million, or $71.3 million, excluding share-based compensation. We ended 2018 in a well-capitalized position, with…

Thanks Jessica. As I noted in my earlier comments, in 2018 we generated significant forward momentum which we plan to enhance as we move through 2019. As shown on slide 15 over the next several months we anticipate multiple clinical readouts and milestones including Phase 3 results for TRELEGY ELLIPTA in asthma and its successful potential supplemental NDA submission regulatory authorities by GSK later in 2019. Initial commercial metrics for YUPELRI and COPD; completing and reporting data from a Phase 1 study in our lung selective inhale Pan-JAK inhibitor TD 8236 in both healthy volunteers, as well as asthma patients. Supplemental data from the Phase 1B study of TD 1473 in ulcerative colitis will be presented at the DDW meeting in May of 2019 and detailed results from the Phase 2 study of Ampreloxetine and nOH will be presented at an upcoming medical meeting around mid-year, as well as providing further updates on further progression of our late stage studies for both Ampreloxetine in 1473. Closing on slide 16, our focus will continue to be on advancing our pipeline in reaching multiple additional value creating milestones. This is an exciting and energetic time at Theravance Biopharma and we are pleased to share our accomplishments and outlook with you today. Thank you. And now I'd like to turn the call over to the operator for questions.

Thank you, sir [Operator Instructions]. Our first question comes from the line of Louise Chen from Cantor. Your question please.

Okay, thank you for taking my questions; I have three here. So first question I had was, how much revenue is expected to be recognized in 2019 from payments associated with your global collaboration with Janssen for TD 1473? Second question I had is that we’ve seen some safety issues with Pan-JAKs. I’m just wondering if this change your mind about the market opportunity for your products and the last question I had is, what is your cash run away. And if you can't give that sort of guidance, what are some of the big puts and takes that would impact your current cash balance? Thank you.

I’ll take the first question on the payments associated with Janssen and I'll provide a little bit of information, then also Louise direct you when we file our 10-K to look in the 10-K. There's a line on the P&L that says ‘collaboration revenue. The most significant piece of collaboration revenue on the P&L is the amortization of the up-front $100 million payment of Janssen that’s amortized you know more or less along with progress on clinical studies that we make. So you will be able to see this more definitively once we issue the 10-K, but that – looking at the $100 million relative to what we’ve recognized thus far in 2018 will more or less tell you how much more we will recognize and that will depend on our progress associated with clinical trials and really clinical experience. So the faster we accrue the greater expense that we will have and in fact then the greater level of revenue that will amortize into the P&L from the Janssen upfront. So then I’ll actually – this is a very important question, I’ll turn it over to Brett to really talk about Pan-JAK inhibitors and you know why we began several years ago allow the path of designing JAK inhibitors to be in fact organ selective as opposed to systemic. So Brett?

Thanks Rick, and thanks Louise for your question. I think your question was around safety issues that have recently been brought to the life of Pan-JAK inhibitors. I believe you're referring to the announcement from Pfizer actually which was made on February 19 and they had confirmed that in a post marketing study that they were conducting in patients with rheumatoid arthritis, that the DSMB, their Data Safety Monitoring Committee had advised them to drop the higher of the two doses assisting that study. They had a five and a 10 milligram does being assessed, and it was based on observations of the 10 milligram dose, particularly relating to pulmonary embolism and to an increased frequency and overall mortality that their recommendation was to remove that arm, not to stop the study, but to remove the higher of the two arms. We were certainly aware of that information as it came to light. Does it have a bearing on our view on the class? Well, I think it reiterates the importance for us of focusing on KJAK inhibits that by design our organ selective and organ specific rather than focusing on the alternative such as tofacitinib that depends actually for its action on systemic exposure. And so in contrast to other systemically available JAK inhibitor, the full portfolio of JAK inhibitor that we are looking at, including those for the guts or for the eye or for the lung are organ selective by design. In other words they have both physical and chemical characteristics that limit their ability to be able to move outside of that organ. They are actually retained within the organ of interest and they exit the anti-inflammatory effect only in the organ of interest. For the very small amounts of drug that does move into the blood stream, that is effectively and rapidly eliminated again through features of the molecules that we’ve designed in. So that had a number of consequences. We believe that by design, this should allow us to achieve the concentrations that are required for anti-inflammatory effect in the organ of interest, but also importantly they completely limit the opportunity for systemic exposure. Now it probably is unfair for us to speculate on Pfizer’s behalf. It would be premature to make conclusions about the mechanism that maybe driving pulmonary embolism, but we believe it could be reasonable to infer that that's a consequence of systemic pharmacology and again, our programs and our products are intended and designed not to have systemic pharmacology. So we believe that the mechanisms remain highly relevance to treating inflammatory disease. We also believe that our organ selective approach actually becomes even more relevant in the setting of these findings with alternative systemic therapy.

And Louise just to add the, one objective or one potential path that people have followed is to try and design very JAK specific, JAK selective molecules to try and modulate unwanted activity potentially of JAK 2 or JAK 1, and because – and we described this in some detail in R&D Day. It’s because of the way that JAKs payer at a biological system in humans, it's very challenging to design selective JAK inhibitors. You can as we have at Theravance as an example design an irreversible inhibitor of JAK 3 by targeting a specific piece, a binding piece of the binding pocket of JAK 3, but other than that, because of the pairing that occurs with JAKs that’s demonstrated on one of the slides that we presented both at R&D Day and today; it's very difficult to get true selectivity designed into a JAK inhibitor. Now cash runway, you know we finished the year with well over $500 million of cash. We have inflows coming in from the 25% of the trilogy royalties that don't go towards the repayment of debt. So I think you know we're in a very strong position on them as I've said a number of times. Our expectation while not in 2019, sometime after 2019 is that you probably actually moves from cash consuming portion of its lifecycle to a cash contributing portion of its lifecycle, and that should happen just because of the financial dynamics of the product relatively quickly.

Thank you.

Thank you. [Operator Instructions]. Our next question comes from the line of Geoffrey Porges from SVB Leerink. Your question please.

Thank you very much and congratulations on all the progress. Rick, a couple of questions; first, on YUPELRI. You are in the middle of a launch now, but it is the end of February. Could you give us a sense of the number of prescribe, patients what the access is trending towards? And secondly on the RHEA study, could you remind us who is actually conducting the Phase 2b? I believe it is Theravance. And could you give us a sense of when you are scoping the patients and then most importantly when you’ll be doing the interims and be able to provide us with some information about how they are performing. Thanks.

Okay, thanks Geoff. I’ll handle YUPELRI and then I’ll turn it over to Brett to discuss the RHEA study. So access YUPELRI, I think the launch is going well. We are in full promotional mode now with Mylan for the first period of time post approval, you know the month of December and effectively all of January. Sales representatives were in the field with an enlarged package insert, but now the full promotional activity is ongoing by both the Mylan sales force and the Theravance Biopharma sales force. Theravance Biopharma focusing on the hospital and then also focusing on the discharge of patients out of the hospital and then working with Mylan in that to transition these patients back to the home and then of course Mylan focuses on a community and pulmonologists in the community. I think by large while it’s very early, I would say I think the reception is good, the feedback that we’re hearing from the patients that have been put on the drug through their physicians, the experience that the patients are having is good. Now just as a reminder, this is – YUPELRI is reimbursed a primarily through a Part B, as in Boy. The very small percentage of YUPELRI will be reimbursed through a Part D, as in Dog, and what do I mean by very small, well 60% to 70% of YUPELRI will likely be reimbursed through the Part B mechanism of Medicare. That sort of goes hand in glove with distribution. 50% to 60% likely of YUPELRI distribution will come through durable medical equipment manufacturers and a smaller percent of distribution going through retail. Of course hand in glove with reimbursement are the various codes that are established. Right now we’re obviously working – we have a miscellaneous J code that’s supporting a reimbursement. We hope to transition to that into a Q code over the next several months and then finally probably early next year get a permanent J code for the product. But I think the fact that we were dealing with a once a day nebulized product, it’s in a standard jet nebulizer that’s easy for the hospital to use and in fact in patients when they get home, it’s easy because many of these patients have a nebulizer at home. The ease of use is there. We are encouraged, but again I’d say it’s very early and I think by the time we get to our second quarter – into the second quarter and have our next call, I’ll be able to give you quite a bit more granularity in terms of metrics of how it’s going. So that’s YUPELRI. I’ll have Brett address your second question.

Well, thanks. You had asked about the conduct of the ulcerative colitis study, the RHEA study. I can confirm that Theravance Biopharma is accountable for the conduct of both the ulcerative colitis and the Crohn study. I have to say that on collaboration with Janssen has really been, in my experience one of the best partnerships we’ve had. We’ve had highly collaborative interactions. Janssen have been supportive not only in the design features and the engagement with the regulators, but supporting us also in identifying high enrolling sites for both ulcerative colitis and Crohn’s based on their own experiences, but we are accountable for running the study. You asked when we’re scoping patients. I think you are referring to the endoscopy scoping’s and those are done in two intervals. The first is during screening as a baseline prior to any therapy and then it’s repeated at the end of the eight week induction portion for ulcerative colitis; it’s repeated at the end of the 12 week induction period for the Crohn’s patients. We tend to hold the endoscopy assessment until fairly late in screening, partly because it’s an invasive procedure, partly because we want to eliminate other reasons why patients may not be eligible. So it’s done fairly close to the introduction of the drug within a week of them commencing therapy. You had asked about the interim analysis. As reflected on the slide, our plan here is in the first instance with the RHEA study to run a forearm study and there are 240 patients being enrolled, so 60 per arm. That’s to evaluate three active doses under placebo and the plan is once those 240 patients have gone through the induction period of eight weeks, then we’ll conduct what could be construed or considered as an interim, because it’s part of a larger program of work, but that will be at the point at which we evaluate which of these doses is optimal and that will be used to inform dose selection for the next part of the induction study. Patients who’ve gone into the maintenance study will continue to be assessed for safety, regardless of which dose they were dosed on in the pre-interim phase. In terms of timing Geoff, I think we’re really trying to get a sense of how enrollment is going. I’d say its early days for us, but certainly 2019 is all about execution and about enrolling patients and so I’d like to be able to update you during the course of this year as to when we think this will converge to support readout on that study. At this stage, we’re really focused on ensuring that we get the study up and running as quickly as possible.

Great. Thanks very much, Brett.

Thank you. Our next question comes from the line of Alan Carr from Needham. Your question please.

Hi, this is Joey [ph] on for Alan. Thanks for taking my question. For 8236, the Phase 1 data, you mentioned that the results would be sometime this year. Do you have any plans to present that at a conference or would that be a press release and could you provide any further information on what type of biomarkers you are looking at in that study and also looking a little bit ahead, what would a sneak preview of a potential Phase 2 trial look like? Thanks.

Thank you. Thanks for the question. So as you rightly say 8236 is under way and in fact this is in the public domain and it’s a reference we can certainly point you to on clinicaltrials.gov, but what you’ll see in that is that our design was to fairly quickly escalate our doses, single ascending doses in healthy volunteers to get an assessment of the initial tolerability, but to move quickly to patients and in fact our multiple ascending dose portion of this study is being conducted entirely in patients with asthma. One of the key reasons for that is we wanted to make sure early on that there isn’t any propensity or any potential for this drug to cause irritation in the airways, particularly in patients with the disease that we’re interested in, in asthma, and at this early stage being able to exclude or eliminate the possibility of bronchoconstriction, a narrowing of the airways is an important step. So we’re in a phase of development right now, evaluating patients. You asked about biomarkers and we are indeed collecting biomarkers, some of them are called out in the clinicaltrials.gov posting. I would say one of the most relevant for us is exhaled nitric oxide, which has been used historically to evaluate in asthmatics the level of inflammation that they may have. A patient with asthma that’s not controlled has an elevated nitric oxide level in their breath and that can be measured fairly easily and routinely by commercial products that evaluates nitric oxide. That is being done in patients in this study. The patients require or are obliged to come in with higher levels of nitric oxide than you or I would have as normal people and so we’re able to see whether 8236 reduces nitric oxide. That’s one of the endpoints that we’ll be focusing on this year. We do hope to be in a position to be able to report out on that study in the middle of this year. You’d asked about communication. I’m not sure we’ve necessarily settled at this stage on a press release, but certainly it would be our intent to point this in the direction of a meaningful -- a congress, but I would say in terms of press release, it’s probably something that we’ll consider as the year goes through.

Yes, I think depending on the timing, you know we would probably issue some sort of high level press release on the results from the study, but more than likely keep the detail to a meeting, a medical meeting, but it will depend on the timing, you know when the specific late breakers are due as well. Now to Brett’s point, we’re right now in a pretty good position and that we’ve worked our way through the healthy volunteer section and we’re in the asthma patients right now and so we look forward to getting through the rest of the dose escalation in the asthma patients and evaluating the data.

Alright, thank you.

Thank you. Our next question comes from the line of Alexander Duncan from Piper Jaffray. Your question please.

Hi, good evening. Thanks for taking the questions and congratulations on the progress. Related to the Xeljanz new, given the 10 milligram dose that’s used in ulcerative colitis induction, do you now see a bigger opportunity here and if so, by how much? And then given Xeljanz news, do you think there is a chance that a longer safety follow up for 1473 will be necessary prior to submission for approval? Thanks.

Yes, I think Brett and I will sort of tag team on that. I think relative to opportunity, I don’t know that it necessarily increases the opportunity that we see, simply because we saw a significant opportunity for this product prior to the Xeljanz news. I think the very basis for the turn really of the research strategy, a number of years ago to organ-selective medicines and in fact targeting JAK specifically was that we believe that the potential of JAK inhibition could be best harnessed through an organ-selective strategy, whether it be in lung, the gut or potentially the eye and so this, I’d have to say for all of us, the fact that there are today certain adverse events that are being highlighted with Xeljanz and in the future, you know we would expect other systemic JAK inhibitors to potentially have similar mechanism, potentially mechanism related adverse events and our objective at it’s very core here with the design of organ-selective medicines is to avoid the concentration systemically that in fact could lead to those adverse events. So with that, I’ll turn it over to Brett.

Thank you. Just a few points to add actually; I think our own experience with our program to-date suggests that we’re able to achieve anti-inflammatory effect in the organs of interest at levels of concentrations of JAK inhibition drug levels that are much, much lower than what is achieved with Xeljanz, particularly at the 10 milligram dose. I think it’s also fair to point to the fact that at least based on the Phase 2b data with Xeljanz, there was evidence that even the 15 milligram dose had greater efficacy than the 10 milligram and of course what that pointed to is that more efficacy could be achieved provided the risk, the systemic liability could be managed. Now clearly it would be unfair for us to speculate on the implications for the 10 milligram dose of Xeljanz for UC, I think that’s Pfizer’s judgment to make. But I do believe that again it reiterates for us the importance of being able to achieve high concentrations of JAK inhibition and the organ of interest to maximize or optimize efficacy, but always paying attention to reducing systemic liability, always with an eye on reducing systemic risk. And as I mentioned before, it’s been through design that we’ve been able to focus in on that with our own program. To-date, particularly for our GI program, we’ve not observed any concerns related either to blood flow or vascular impairment or coagulation abnormalities in our pre-clinical animal models even after six and nine months of administration and nor have we seen any evidence in our human studies to date of any increased risk. Now, of course we have to remain vigilant that the reason that we continue to do observations on safety throughout development, including in Phase 2b/3, but to close I think really by design we believe that our approach here significantly reduces the risk of the unwanted side effects of JAK inhibition that might be seen with systemically available therapies while still being able to achieve optimal efficacy through this organ-selective approach.

Great, thanks so much. :

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

Thank you very much operator. Thanks everyone. We’re looking forward to an eventful and exciting 2019 and into 2020. Thanks for participating and have a great day!

This concludes today’s conference call. We thank you for your participation, you may now disconnect.