Ladies and gentlemen good afternoon. I'd 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] Today's conference call is being recorded. And now I would like to turn the call over to Jessica Stitt, Vice President, Finance and Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining our conference call and webcast to discuss our third quarter 2019 financial results and outlook. Joining us are Rick Winningham, Chief Executive Officer; Andrew Hindman, Chief Financial Officer; Brett Haumann, Chief Medical Officer; 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 Web site or you can call Investor Relations at 650 808-4045 and we'll be happy to assist you. As always, I will remind you that this conference call will contain forward-looking statements which involve certain risks and uncertainties including statements about our product 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 would direct your attention to Slide three and hand the call to Rick.

Thanks Jessica. Good afternoon everyone and thank you for joining us. As we approach the end of 2019 a critical year of progress for Theravance Biopharma, we believe that our organ-selective focus and research translational science and development has generated a portfolio of product candidates that have the potential to transform the treatment of serious chronic diseases. As we prepare to turn the corner into 2020, it's an exciting time for our company with important value creating milestones expected across our key programs. We have generated a compelling body of evidence attesting to the therapeutic value of organ-selective medicines. These organ-selective medicines are directed at biological targets that cannot be fully leveraged systemically without incurring serious dose-limiting toxicities. We've demonstrated the potential to maximize the value of proven and potent biology to achieve greater efficacy, safety and enhanced outcomes for patients. Over the years we've honed our ability to engineer and optimize drug properties that allow for precise organ selectivity to target the site of inflammation and avoid systemic liabilities. Starting with our early work with GSK on lung-specific compounds including components of Breo, Anoro and Trelegy, we enhanced and applied our know-how to the discovery and development of YUPELRI our once-daily nebulized long-acting muscarinic antagonist or LAMA approved for the maintenance treatment of COPD partnered with Mylan. And our inhaled pan-JAK inhibitor TD-8236 in development for inflammatory lung diseases, which has shown encouraging early data in healthy volunteers and mild asthmatics. We further translated our design insights to be able to deliver drugs into the intestinal tract such that today we're advancing 2 gut-selective programs in partnership with Janssen our pan-JAK inhibitor TD1473 and our irreversible JAK3 inhibitor TD5202 both in clinical development for inflammatory intestinal diseases. Each of these 3 key programs represent a potentially paradigm-changing medicine based…

Thanks Rick. Starting on Slide four, 1473 is an oral gut-selective pan-JAK inhibitor designed to treat inflammatory intestinal disease directly at the site of inflammation in an organ-selective manner with minimal systemic exposure or corresponding immunosuppressive effects. Our objective is to apply our organ-selective approach to the wall of the intestinal tract to enhance therapeutic index providing greater efficacy and safety over conventional systemic therapies. As Rick noted 1473 is in 2 clinical studies, 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 ulcerative colitis. The Phase 2b dose finding induction portion of the study is assessing the effect of eight weeks of 1473 treatment on the change from baseline in total Mayo score as the primary endpoints as well as assessing rates of clinical response and remission endoscopic mucosal healing and safety. Patients in the study receive 1 of 3 doses of 1473 or placebo. Patients who successfully complete the Phase 2b induction portion of the study are immediately enrolled into the Phase 3 maintenance portion of the study which assesses the ongoing efficacy and safety of 1473 for an additional 44 weeks. In parallel, DIONE is a Phase 2 12-week randomized double-blind placebo-controlled study designed to evaluate 1473's efficacy and safety in patients with Crohn's disease. The primary endpoint of the study is improvement in the Crohn's Disease Activity Index measured at 12 weeks. Patients in the study receive one of two doses of 1473 or placebo. Patients who complete the 12-week induction phase continue into an active treatment extension phase where all patients receive open-label 1473 for up to 12 months to continue to collect safety data. We expect data from the Phase 2b portion of the ulcerative colitis study and…

Thanks, Brett, and good afternoon, everyone. Starting with Slide 12, we continue to be 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 last year for the maintenance treatment of patients with COPD. Turning to Slide 13, remember that in our commercial strategy with Mylan we focus on the institutional setting while Mylan covers the outpatient treatment settings. There are about 800,000 patients admitted each year to U.S. hospitals for worsening of their COPD. About half of those patients leave the hospital with a prescription for nebulized therapy making the hospital an opportunistic 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. These patients may represent an additional opportunity for treatment with YUPELRI. Market feedback and early performance indicators accumulated over the last nine months continue to trend favorably. As shown on Slide 14, we are tracking key performance metrics including formulary reviews and wins, patient uptake and market access. During the third quarter YUPELRI has been accepted to an additional 28 institutional formularies. These incremental 28 formulary wins added another 60 accounts to the list of nearly 140 accounts already with YUPELRI on formulary. Through the remainder of 2019 we have the potential for more than 60 formulary reviews which could result in roughly 300 additional accounts. We currently have 27 academic medical centers as current customers and we've advanced the formulary process in more than 60 additional academic medical centers and hospital systems. We estimate that approximately 21,000 patients…

Thank you, Frank. I'll begin on Slide 15. Revenue for the third quarter of 2019 was $12.4 million comprised of collaboration revenue primarily related to our global collaboration agreement with Janssen for 1473 and Mylan collaboration revenue for YUPELRI. Revenue for the third quarter of 2019 represents a decrease of approximately $0.4 million over the same period in 2018. The decrease was primarily due to a decrease in product sales which resulted from the sale of VIBATIV to Cumberland Pharmaceuticals in late 2018 mostly offset by Mylan collaboration revenue for YUPELRI. R&D expenses for the third quarter of 2019 were $52.0 million compared to $52.7 million in the same period in 2018. The decrease was primarily due to lower employee-related costs associated with the reduction in force announced in the first quarter of 2019 partially offset by an increase in external expenses related to the progression of our key programs. Third quarter R&D expenses included non-cash share-based compensation of $6.5 million. SG&A expenses for the third quarter of 2019 were $25.6 million compared to $21.9 million in the same period in 2018. The increase was primarily due to higher external expenses and share-based compensation partially offset by lower employee related costs associated with the reduction in force announced in the first quarter of 2019. Third quarter SG&A expenses included non-cash share-based compensation of $6.6 million. We ended the quarter in a well-capitalized position with approximately $353 million in cash, cash equivalents marketable securities and restricted cash. Turning to financial guidance, we have reduced our 2019 full year operating loss guidance to $200 million to $210 million excluding non-cash share-based compensation. This is primarily due to licensing revenue recognized in the second quarter of 2019 associated with the upfront received from Mylan for development and commercialization rights for YUPELRI in China.…

Thanks, Andrew. Looking forward and as shown on Slide 17 execution against our key programs is driving us forward toward value creating events for the near and long-term. Important upcoming milestones include additional U.S. commercial launch metrics for YUPELRI in COPD through the remainder of 2019 and into 2020. Progression of our late stage clinical studies of ampreloxetine and 1473 with important data readouts by the end of 2020. Continued advancement of our early stage programs 8236 and 5202 towards key inflection points throughout 2020 plus additional novel organ-selective research programs entering the clinic over the next 12 to 18 months. And finally, further commercial and regulatory progress by GSK for Trelegy including FDA decisions on the SNDA for mortality claim in COPD and an SNDA for an asthma indication in 2020. We're pleased with our achievements this year including maintenance of our strong capital position and the promising lineup of value-creating milestones we anticipate over the next 12 to 18 months. This is an exciting 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.

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

Hi. Thanks for taking our questions. This is Jennifer on for Louise. I have 2. My first question is on YUPELRI. We really appreciate the color around the launch so far. I'm wondering if you can give a bit more color on how you're thinking about growth into 2020. I think based off your comments maybe Medicare Part D might come online more in like the second quarter 2020 timing. And I'm wondering what other levers we should think about. And my second question just on Trelegy just making sure I'm thinking about it correctly. So third quarter revenues around $172 million and assuming 5.5% royalties that gets me to around $9.5 million, but I see that you booked around $7.2 million and I'm wondering what we might be missing there. And then how you're thinking about royalties the next few quarters. Thanks.

Sure. I'll take the YUPELRI question and color on the launch into 2020 and then perhaps ask Frank to add. I think if you look at where we are with YUPELRI in Medicare Part B which is by far the most important segment for us what you're seeing in terms of the increase in patients treated effectively in the third quarter going to 21,000 from about 7,000 is clearly easier reimbursement processing from the awarding of the permanent J Code and durable medical equipment suppliers really coming online because of an ease of reimbursement processing. And the message importantly as Frank highlighted the message on YUPELRI for the really rather significant niche of COPD patients is meaningful. And the product is delivering on its promise. And we're at the very beginning, I would say of the launch curve with YUPELRI. We're really excited about everything we're seeing in all of our market research. Clearly, as I've said before and I think Frank has highlighted before, the hospital business we would expect to be delivering more meaningful sales into the outpatient sector throughout 2020. We would also expect the long-term care market to begin delivering business. Frank?

I would add just a couple of things. I think the Medicare Part D space just by definition is always going to be a space that's not very large. I mean patients need to progress through 100 days of long-term care, and then, they progress into a Medicare Part D. So, while we pay attention to that and while we work that space obviously the bulk of our resources are focused on the Medicare Part B space. Based on what we've seen since the launch we believe that YUPELRI is doing everything that we expected it to do when it was in development when we put a plan together for the launch and everything that we've seen so far is very consistent with what we thought about the brand when we launched it. And then, we've got a lot of steam with both the payer segment as well as treating physicians and we believe that's going to carry us through not only in 2020 but beyond. We've got -- we're the only once-daily nebulized LAMA and we should be the only once-daily nebulized LAMA on the market for years to come.

So now the question on Trelegy and the reconciliation of about the $9 million to $7 million. There were some expenses from TRC that were withheld causing us to book only $7 million. I would expect there to be a certain unevenness with regard to the translation of a pure royalty calculation to the income that we record all in all relatively minor differences. But that's the difference it's just expenses in TRC that were deducted in the third quarter.

Thank you.

Thank you. Our next question comes from Tyler Van Buren of Piper Jaffray. Your line is open.

Hey, guys. Good afternoon thanks for taking the questions. The first one is on 1473. I understand that we'll be getting a bunch of Phase 2 data at the end of next year, but with respect to the safety profile could you just speak towards how long you think it might take to definitively prove out an improved safety profile in terms of infections and malignancies? And then also on the PK side what additional PK data we will get with all that Phase 2 data coming next year.

Thanks, Tyler. I'll take start on the safety. I think probably one of the more meaningful set of work that we've done has been 6 and 9-month having already completed 6 and 9-month tox studies in multiple species over a year ago. And what was critical about that work at the time and we actually disclosed that those studies have been completed was that those studies showed a safety margin in what we saw in any toxicity in animals versus what doses even at the very highest dose that we were using in human studies. That's unlike other JAK inhibitors that in fact have not shown to have a safety margin. That was pretty important to us. I think the second piece of information and then I'll turn it over to Brett was the extremely low systemic levels that we saw in the Phase 1b study in patients with ulcerative colitis. They're really orders of magnitude lower than what you see from any other systemic JAK inhibitors. So, Brett?

Thanks, Rick. And Tyler thanks for your questions. Additional elements to emphasize the benefit of the current program is that patients who complete our 8-week induction portion immediately move into the 44-week maintenance. And so we're actually generating long-term human clinical data on safety even at this sort of mid-stage program if you like. So that provides us with additional insights as we go forward. Obviously, we continue to monitor for infection rates opportunistic infections, the sorts of things that we know other systemic JAK inhibitors may have a liability for. But that we predict will have a much lower liability and much lower propensity with a drug that's been designed to remain localized and be organ-selective. You asked about PK data and we will continue to collect PK data on a more what we call a sparse sampling regimen. In Phase 1, we collect multiple time points for PK on every patient. In Phase 2 and 3 we distribute that across patients and collect random samples. But that will continue throughout the development program, so that we continue to confirm what we have seen up to now which is very low levels of the drug in patients with active disease as Rick was alluding to.

Okay. That's helpful. And then just the last one on Trelegy. I know three months does not make a trend, but it kind of appears like its plateaued the last three months and I know it's also the end of summer to some extent. So, I guess could you maybe just speak toward that if you've been seeing anything in the market on Trelegy that's caused that? And if you'd expect that to kind of reaccelerate. And also are you given the positive CAPTAIN study data, are you seeing any off-label use in asthma as well?

I think we track Trelegy fairly carefully. I think you have seen over the summer months through the launch of Trelegy and particularly in the respiratory products you see a leveling off of sales and then you get into the respiratory season sort of in the fall and the winter where you see a further acceleration in the seasonality. We'd expect very broadly to see that with Trelegy in its existing indication of COPD. With regard to the asthma, I think there's probably a small amount relatively small amount of use of Trelegy in asthma, but I would expect that to be magnified considerably with an indication because of the benefit that Trelegy was able to show against a very good product Breo in the CAPTAIN study. Finally, I think the other terrific engine of growth if it were to transpire would be a mortality claim versus Anoro. I think that would be quite unique for Trelegy and put it on a completely different level of product. So we're very excited about where Trelegy has come in the United States, we look forward to growth through the respiratory season look forward to the asthma indication and then as importantly I think the Trelegy launches outside the United States specifically in China should add a boost overall to Trelegy sales.

Great. Thanks again.

Thank you. Our next question comes from Douglas Tsao of H.C. Wainwright. Your line is open.

Hi. Good afternoon and thanks for taking the questions. Just first for 8236 just curious in the number of patients that you expect to enroll in the lung allergen study. And then just also how long will they be dosed on 8236 in that study before experiencing the lung allergen the challenge?

Thanks, Douglas. This is Brett. I don't know if we've actually called out the specific number of patients. It will be visible on clinicaltrials.gov imminently. But the beauty of this design is that these patients act as their own control. So, we cross patients over. And usually a sample size of 30 or even less patients in a study would be sufficient to detect an allergen challenge response. Only because the same patients then go onto be treated with placebo or different doses of the active. So these are relatively small mechanistic studies. They're useful in terms of detecting the ability to protect against a big insult in the lung. But we don't need many patients to be able to be powered for this effect. The way we do this is that we actually check that these patients have a response to an allergen before they're treated with any drug and that's established at baseline. And then, really what we're looking for is an attenuation of that response once they are pretreated. In this particular study we'll be pre-treating for a period of 14 days before the patients are dosed, before they're challenged. Just to answer your question only because we've just pulled it up it is now available on clinicaltrials.gov and so I can confirm exactly its 21 patients in this particular study.

Great thank you very much. And then on YUPELRI just of the patients to-date who have gone on the product just curious how many have actually made that transition from inpatient to outpatient therapy or has it largely been on the inpatient side today?

The 21,000 that we're referencing are largely outpatient is outpatient use. So the strategy of course is really to attack all segments of the market. Frank can expand on that.

Yes. It does include the entire market. I'll just remind you when patients do cycle through the hospital they are only in the hospital typically for a couple of days 2 or 3 days and then they are back out into the community. And that coupled with the long process around formulary approvals that's an area of the launch that's actually exceeded our expectations, but its formulary approval and then it's a med exec signoff, and then, it has to be loaded into electronic medical record systems in these particular hospitals. So there's a lag time. So while the majority of patients are always going to come into the community you're going to see an increasing number of patients treated and converted and sent back out into the community on YUPELRI.

Okay, great. Thanks for that clarification.

Thank you. [Operator Instructions] Our next question comes from the line of Alan Carr of Needham. Your line is open.

Thanks for taking my questions. Can you give us a little more update on 5202 in terms of what we can expect to see from this Phase 1 and then what are the next steps assuming you see what you want to see from that? Thanks.

Brett?

Thanks. So, Alan, really the plan here is to complete the current program of work in healthy volunteers. At this stage we'll be really looking for very similar evidence that we did in the early stages of 1473 in healthy volunteers. That the amounts of drug getting into the systemic circulation are low that we don't see any disruption in the hematological response of the body, so particularly white cell counts remain normal and so on. So we're looking to ensure that the systemic effects of a JAK inhibitor aren't transferred with this particular localized effect. We're not dosing patients at this stage so we won't have biomarkers that really attest to the biological activity at this early point. But to answer your second question that really is the plan for the next phase. The next step here having confirmed safety in healthy volunteers would be to move into a disease state. And really we're still working through that with our partner Janssen as to what would be the ideal setting for this. You've seen on our slides that we've speculated about some disease settings; celiac disease for example which looks interesting to us but I think it would be premature at this point to settle on that only because we're still working through this with our partner.

Yes. Alan, I think we're pretty excited about 5202 and what it may be able to do. The dose range that we're examining in Phase 1 really goes up to a pretty high level. And assuming that we see in healthy volunteers in 5202 what we saw in 1473, we think we have another fairly powerful immune modulator that can be restricted to both the small and the large intestine. And as Brett said and as the slide said certainly celiac is one of those diseases that is quite interesting because there's really not been a pharmacologic intervention that's worked there. But, we'll be talking about that and probably back to the public in the first part of 2020 with the plans after we finish up Phase 1.

Okay. And with respect to ampreloxetine you've guided for second half of 2020 for SEQUOIA. How is enrollment going in REDWOOD and what's your sense of when we may see data from that trial?

So, Alan, good question. We're in the active enrollment phase for both studies actually. We're enrolling patients into both SEQUOIA and REDWOOD. Out of respect for the fact that we wanted patients to preferentially get into the SEQUOIA study first we've been preventing patients who haven't otherwise gone into SEQUOIA from going straight into REDWOOD. As you might appreciate patients who are offered four months of open label therapy may preferentially or bias toward just going into the second of the 2 studies. And so we have been working directly with scientists to prevent that. The patients who are currently moving into the REDWOOD study come out of SEQUOIA. But as soon as we're fully enrolled on SEQUOIA we'll open that up so that newer patients the remaining people who need to come into the REDWOOD study do so freely across other centers. So, we are orchestrating that at the moment. I think I think we're still working through the logistics which is why we haven't pointed to a readout for REDWOOD yet, but I think we'll get a good sense of that certainly in the early half of 2020 and we'll be able to answer your question more directly.

Great. Thanks for taking my questions.

Thank you. Your next question comes from Geoff Porges of SVB Leerink. Your line is open.

Hey, thanks for the question. This is Andrew on for Geoff. I have a question about the Innoviva issue. So we understand Innoviva still withholds about $8 million of royalties and my question is going forward, what is the proportion of the expected royalty on Trelegy that we should model for Theravance? Any insight would be helpful.

Yes. Well, our expectation is that the significant whatever the royalties are that come in to TRC from Trelegy sales end up going through the TRC and be distributed in an 85/15 fashion to Theravance Biopharma and Innoviva. The clarity that was provided by the arbitrator really was that if Innoviva chose to use any of the dollars that came into TRC on Trelegy initiatives they had to get GSK's approval. First they had to show up in a plan and they had to get GSK's approval and then they had to do it within a relatively short period of time. So, I think our expectation of the cash flow is in fact for the cash flow to come from the Trelegy royalties into the TRC and be distributed in an 85:15 with a relatively minor amount of money being used by TRC for the operation of the LLC. And I think as we pointed relative to the dispute Innoviva is responsible for presenting their ideas to GSK and obtaining GSK consent related to the $8 million no later than we should have a result no later than the end of first quarter next year. And that's how I would expect things to go going forward and my expectation is that as I said a majority of the royalties that flow into the limited liability corporation in fact 85% of them flow to Theravance Biopharma.

Right. Thank you very much.

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.

Thanks everyone for participating. We are very excited about the progress that we're making across the company and across all of our programs. We look forward to providing you further updates in the upcoming months and we look forward to finishing 2019 strong and having a good 2020. Again, thank you for participating.

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