For Theravance, A Big Year Gets Off To A Strong Start

Theravance could soon have its first substantial revenue generator on the market, the COPD therapy Breo Ellipta partnered with GlaxoSmithKline. The launch of Breo is just one of several catalysts expected to unfold for the biotech in 2013.

Innoviva Inc. is poised for change in 2013 and will likely exit the year with a steady revenue stream, headed toward profitability and focused on new growth platforms. After years of discovery work and research, the company is on track to see its first substantial revenue generator reach the market.

The once-daily combination product Breo Ellipta (fluticasone furoate/vilanterol inhalation powder), partnered with GlaxoSmithKline PLC, received a green light from FDA’s Pulmonary-Allergy Drugs Advisory Committee April 17 for the treatment of chronic obstructive pulmonary disease, a positive indicator the drug will be approved by FDA (Also see "Breo Ellipta Review Pits Clinical Benefits Against Statistical Shortcomings" - Pink Sheet, 22 Apr, 2013.). Breo Ellipta has a May 12 PDUFA date.

“The remainder of the year will be quite exciting, quite eventful for us,” CEO Rick Winningham said in an interview.

If approved, Breo will be the first of several respiratory products the partners plan to launch, the culmination of a decade of working together. Breo, which combines the corticosteroid fluticasone furoate with the long-acting beta-agonist vilanterol, will enter a multi-billion dollar market for COPD drugs as the first ICS/LABA combination with once-daily dosing.

GSK intends Breo to extend the life of its best-selling drug, Advair Diskus (fluticasone propionate/salmeterol), which is dosed twice-daily. Advair is approved for both COPD and asthma, however, with the bulk of its sales coming from the asthma market. Theravance/GSK are aiming to eventually add the asthma indication to Breo in the U.S. Before that happens, they are looking to complete one more Phase III trial requested by FDA. In Europe, where they propose marketing the drug as Relvar, the partners have filed for both asthma and COPD.

Certainly, Breo is important to GSK, which padded its top line with $7.72 billion (£5.05 billion) generated from Advair in 2012. The threat of generic competition looms for that drug, although the date isn’t clear due to high barriers to entry in the respiratory space and patents on its delivery system. But Breo is just as critical to its smaller partner, which has yet to turn a profit. Signaling just how important the drug is to Theravance, the South San Francisco, Calif. company halted trading April 17, the day of the FDA advisory committee review. The stock opened April 18 at $32.50, 16% higher than its April 16 closing price.

A Focus On Discovery, Partnering

Investors are anxious to see Theravance build out its top-line with a steady revenue stream in the form of a royalty on sales of Breo. The company will receive a 15% royalty on sales of the drug for the first $3 billion in annual net revenues and 5% on annual net revenues exceeding $3 billion. Thus far, the biotech has mainly generated revenues through cash payments from partners.

Theravance’s ambition hasn’t changed since it was established in 1997 as Advanced Medicine, focused on discovery and early research with the goal of partnering assets. The company changed its name to Theravance in 2002 and went public in 2004, but its core strategy remains the same (Also see "Theravance: Having Cake and Eating It" - In Vivo, 1 Mar, 2005.). Even as many of its biotech brethren have gone commercial, Theravance is sticking to its partnering philosophy.

“A core part of our strategy is partnering, so I would expect it to remain that way,” said Winningham, who joined the company as CEO in 2001 and has led it through many transitions. “We may at some time build a small commercial organization, but our focus really remains on partnering and drug discovery.”

Theravance has had some good successes in that area too, particularly in its dealings with GSK. The company’s original deal with GSK dates back to November 2002, when the big pharma paid $50 million upfront including a $10 million cash payment and $40 million stock investment to develop a second-generation Advair product [See Deal]. The companies have updated their partnership several times since, most recently in 2012, when GSK again increased its stake in the company (Also see "GSK Boosts Stake In Theravance, An Apparent Nod To The Biotech's Respiratory Portfolio" - Pink Sheet, 29 Nov, 2010.). GSK now owns close to a 27% stake in Theravance and is considered by many industry observers and investors to be a potential acquirer of the company.

The companies are working together on a full portfolio of drugs. The next commercial opportunity is already pending at FDA, and the positive nod from the agency on Breo should improve investor sentiment on that drug as well. Anoro Ellipta is a once-daily combination of vilanterol and the long-acting muscarinic antagonist (LAMA) umeclidinium, also for COPD. The companies filed an NDA for Anoro with FDA in December 2012, and the drug has a Dec. 18 PDUFA date. Theravance stands to receive tiered royalties on sales of Anoro, starting at 6.5% and plateauing at 10%.

A third product, an inhaled bifunctional muscarinic antagonist-beta2 agonist (MABA), GSK961081, is in late-stage development for COPD. It combines both muscarinic antagonist and beta2 receptor agonist activities in a single molecule. That product is moving into Phase III trials this year, and the partners are also developing a combination of ’081 with fluticasone furoate.

“Within this suite of products, we have high expectations,” CFO Michael Aguiar said. “As we look forward it is pretty likely if we are successful and we keep our objectives that Relvar/Breo will be a $3 billion brand.”

Convincing Patients And Payers

But FDA approval does not guarantee commercial success. Short of a new drug that can stop the progression of COPD, patients may not jump to try a new entry. Patients and physicians are comfortable with existing treatment options for COPD, including Advair and the Diskus inhalation device. And, the efficacy data for Breo isn’t likely to push them to switch. The broad Phase III program for Breo, including 16 trials in asthma and COPD, yielded mixed results in terms of efficacy. It failed to demonstrate statistically significant differences in some trials at certain doses and failed to demonstrate superiority to Advair in non-pivotal studies (Also see "Relovair Data Raises Respiratory Stakes For GSK And Theravance" - Pink Sheet, 16 Jan, 2012.).

Payers, too, are likely to balk at paying more for a once-daily dosing benefit over twice-daily treatment options, especially if low-cost generics do reach the market. The companies have not revealed how they plan to price the product. But GSK/Theravance believe they can make their case for Breo to payers by showing that once-daily dosing results in better compliance, which in turn improves health outcomes and reduces overall health care costs.

Last year, GSK initiated the Salford Lung study in the U.K., which aims to study the health care costs associated with once-daily treatment with Breo versus treatment with a patients’ existing corticosteroid/LABA combination twice daily in a real-world setting. Investigators will monitor patients closely and evaluate their e-health records, but with minimal intervention in their everyday lives and without enforcing the controls usually put in place for clinical trials. The one-year trial aims to enroll 4,000 patients with COPD and 5,000 patients with asthma.

“History guides us that better compliance is going to lead to better control of health care costs, and we plan to show that through the Salford Lung study,” Winningham said.

Analyst expectations for Breo, while substantial, are modest compared to Advair. Leerink Swann analyst Howard Liang forecasts sales of Breo to be $740.8 million in 2014 (royalties of $111.1 million for Theravance) and growing to $3.19 billion in 2017 (royalties of $478.5 million for Theravance). Bryan, Garnier & Co. analyst Eric Le Berrigaud estimates peak sales of the drug reaching $2.75 billion (£1.8 billion) in 2020. Bernstein Research analyst Tim Anderson forecasts far more modest sales of the product owing to payer pushback and the eventual launch of generic versions of Advair: $707.6 million in 2016 growing to $1.07 billion in 2020.

“GSK will likely have to work hard to sell the product and convince payers that they should adopt favorable reimbursement status and market access,” Anderson predicted in an April 17 research note.

Persistence Pays Off For Vibativ

While Breo may be Theravance’s first opportunity to secure a steady revenue stream, the drug is not the company’s first product to reach the market. Its antibiotic Vibativ (telavancin), which it out-licensed to Astellas Pharma Inc. in 2005, exchanging worldwide exclusive rights for $65 million upfront, received FDA approval in 2009 [See Deal].

The drug is indicated for the treatment of complicated skin and skin structure infections (cSSSI) caused by Gram-positive infections. It was approved in Europe in 2011 for treatment of patients with nosocomial pneumonia caused by methicillin-resistant Staphylococcus aureus (MRSA). That indication eluded the companies in the U.S., largely because of FDA’s changing regulatory requirements for antibiotics that treat pneumonia, and the drug was the subject of two “complete response” letters.

Vibativ generated $9 million in sales during Astellas’ fiscal 2010, and ultimately given the drug’s slow uptake, regulatory challenges with FDA and changing priorities, the Japanese pharma returned rights to the drug to Theravance in January 2012. Theravance walked away from that deal relatively unscathed, however, since Astellas had made $220 million in payments to the company.

Now the regulatory tide may be turning for Vibativ. After four years of trying to get the antibiotic cleared for nosocomial pneumonia, a final appeal recently opened the door for a re-evaluation of the NDA by the Division of Anti-Infective Products. In the meantime, as the threat of antibiotic resistance has grown and drug makers have exited the anti-infectives field because of the regulatory and commercial hurdles, FDA’s thinking on clinical trial designs and endpoints has evolved. At the Nov. 29 advisory committee meeting, the panel voted in favor of approving Vibativ for pneumonia when other alternatives aren’t an option (Also see "Theravance’s Persistence On Telavancin Rewarded With Positive Cmte. Vote" - Pink Sheet, 3 Dec, 2012.).

Theravance is now awaiting word from FDA on whether Vibativ will be approved for the additional indication. Winningham said the company expects action by mid-year. The company is in discussions with potential partners for the U.S. market, and in March, Theravance signed the U.K. pharma company Clinigen Group PLC as a partner to commercialize the drug in Europe. Theravance will receive $5 million up front plus 20% to 30% royalties on sales [See Deal].

Theravance also is working to re-establish a consistent supply of Vibativ; the product is currently not available commercially due to compliance problems at its previous sole-source, third-party manufacturer.

Meanwhile, Theravance is also advancing several candidates in its pipeline, a number of which are in Phase II clinical studies that will report out later this year [see chart]. The company will decide whether to move those into Phase III independently or partner them as the data read out. It had $343.7 million in cash and equivalents as of Dec. 31 to help finance the pipeline. A buyout by GSK, however, could certainly change those plans while rewarding Theravance’s patient investors.

Theravance Pipeline: COPD And Beyond
Drug/Partner	Development Phase	Indication
Breo Ellipta (fluticasone furoate/vilanterol inhalation powder)/GlaxoSmithKline	Registration (May 12 PDUFA date)	COPD; In Phase III for asthma in the U.S.
Anoro Ellipta (vilanterol/umeclidinium)/GlaxoSmithKline	Registration (Dec. 18 PDUFA date)	COPD
Vibativ (telavancin)/Clinigen in Europe	Registration	Nosocomial pneumonia/approved for skin structure infections in the U.S. but not on the market
GSK961081 (bifunctional muscarinic antagonist-beta2 agonist (MABA))/GlaxoSmithKline	Phase III ready	COPD
TD-1211, (mu opioid receptor inhibitor)	Phase III ready	Opioid-induced constipation
TD-4208 (LAMA) for nebulizer	Phase IIb	COPD
TD-9855 (norepinephrine and serotonin reuptake inhibitor)	Phase II	Attention-deficit/hyperactivity disorder and fibromyalgia
Velusetrag (5-HT4 receptor antagonist)/Alfa Wassermann	Phase II	Diabetic or idiopathic gastroparesis