Split Update Overshadows Wider Q1 Loss at Theravance - Analyst Blog

Theravance's THRX first quarter 2014 loss of 62 cents per share was wider than the Zacks Consensus Estimate of a loss of 53 cents per share and the year-ago loss of 39 cents. The wider year-over-year loss was due to lower revenues and higher costs.

Net revenues in the first quarter of 2014 declined to $0.17 million from $1.3 million a year ago. Revenues in the first quarter of 2014 were well short of the Zacks Consensus Estimate of $4 million.

The company recorded product sales of $0.9 million from the recognition of sales of Vibativ (inclusive of previously deferred amounts). Theravance earned royalties of $0.7 million from partner GlaxoSmithKline GSK on net sales of Breo Ellipta/Relvar Ellipta. Royalty revenues during the first quarter of 2014 were reduced by amortization expense for intangible assets amounting to $1.8 million.

Research & development (R&D) expenses were up 64.4% to $43.4 million in the first quarter of 2014. The increase in R&D expenses was primarily attributable to the company's efforts to develop its pipeline. General & administrative (G&A) expenses for the reported quarter more than doubled to $22.8 million primarily due to costs incurred by the company pertaining to its plan to split into 2 entities. Higher employee related costs also contributed to the increase.

Theravance to Split Shortly

Management at Theravance announced an update on its impending separation into 2 independent, listed companies - Theravance, Inc. (the royalty management company) and Theravance Biopharma, Inc. (the R&D company). Management announced that the separation date will be Jun 2. As per the company, each stakeholder at Theravance as of May 15, 2014 will receive shares of Theravance Biopharma, Inc. (in the form of dividend) on Jun 2, 2014.  Management will pay a quarterly cash dividend of 25 cents per share to Theravance's shareholders following the split (i.e. from the third quarter of 2014).

We remind investors that Theravance had announced its decision to split into two companies in Apr 2013. While one company will focus on the development of the respiratory candidates under Theravance's agreement with Glaxo and associated royalties from the sale of approved drugs under the partnership, the other (Theravance Biopharma) will focus on the discovery, development and commercialization of small-molecule therapies targeted towards areas of high unmet medical need.

Our View

We believe investor focus will be on the impending split of Theravance into 2 companies. We are positive on the decision as it will enable each entity to focus on their respective areas of strength.

We are also positive on the company's collaboration with Glaxo. Respiratory drugs, emanating from the partnership, like Breo Ellipta and Anoro Ellipta, are already available in the market. In Oct 2013, Breo Ellipta was launched in the U.S. as a long-term maintenance therapy of airflow obstruction and for bringing down exacerbations in patients suffering from chronic obstructive pulmonary disease (COPD).The drug was cleared in the EU (trade name: Relvar Ellipta) for the COPD and asthma indications in Nov 2013. Theravance announced that as of Apr 25, the drug has been approved in 42 nations and launched in 12 countries across the globe. Approval of Breo in the U.S. for asthma will be sought later in the year.

The U.S. approval of Anoro Ellipta for COPD came in Dec 2013 (launched last month). The EU approval of Anoro Ellipta is on track with the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) recommending its approval in Feb 2014.

Theravance is also developing other candidates in its pipeline both under the Glaxo partnership (GSK961081) as well as alone (TD-4208). Investor focus will also remain on Theravance's pipeline development efforts.

Theravance, a biopharmaceutical company, carries a Zacks Rank # 3 (Hold).  Better-ranked stocks in the biopharma space include Alexion Pharmaceuticals ALXN and Gilead Sciences GILD. Both stocks carry a Zacks Rank #1 (Strong Buy).