Loss Widens at Theravance, Rev Dips - Analyst Blog

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Theravance Inc. 's ( THRX ) fourth quarter 2011 loss per share of 45 cents was wider than the Zacks Consensus loss Estimate of a loss of 39 cents as well as the year-ago loss of 25 cents per share. The wider loss was attributable to lower revenues as well as increased research and development (R&D) expenses.'

The Quarter in Detail

Revenues for the quarter primarily consisted of the amortization of deferred revenues received under the company's collaborations with Astellas Pharma and GlaxoSmithKline plc ( GSK ). Revenue at Theravance was down 22.8% over the prior year to $5.4 million due to lower royalties in the quarter. Revenue was also below the Zacks Consensus Estimate of $7 million. Vibativ, an injectable antibiotic, is Theravance's only commercialized drug. In early January 2012, Theravance announced termination of its license, development and commercialization agreement with Astellas for Vibativ. Theravance earned a royalty of $0.3 million on Vibativ sales from Astellas Pharma on net sales of $1.6 million in the reported quarter.

Vibativ is currently marketed in the US and Canada for the treatment of complicated skin and skin structure infections (cSSSI). Vibativ is under review in the EU for the disease. Vibativ is marketed in the EU for the treatment of nosocomial pneumonia ( NP ). In the US, however, Theravance received a complete response letter ("CRL") for the NP indication. Theravance is on the lookout for strategic alternatives for the drug, including a new partner.

General and administrative (G&A) expenses rose 14.9% to $8.5 million during the fourth quarter due to higher employee costs. Research and development (R&D) expenses shot up 85.7% over the prior-year quarter to $32.5 million primarily due to higher costs for the development of Theravance's pipeline candidates under the PμMA and MARIN programs as well as on some additional preclinical HCV and cardiovascular programs.

Pipeline Update

Theravance has an active collaboration with Glaxo for the development of its lead pipeline candidate, Relovair. Relovair is a combination of fluticasone furoate and vilanterol and is being developed for the treatment of chronic obstructive pulmonary disease ("COPD") and asthma. In January this year, the companies announced top-line data from pivotal phase III studies. Despite mixed results from the studies, both Glaxo and Theravance are confident about Relovair's prospects and feel that the results are adequate for filing. Glaxo plans to submit marketing applications to the regulatory bodies in the US and Europe in mid-2012 for the COPD indication.

For the asthma indication, the company plans to seek EU approval in mid-2012. Glaxo remains in talks with the FDA on requirements for a filing for the asthma indication of Relovair.

2012 Guidance

Theravance expects operating expense in the range of $120 million to $130 million in 2012. Operating expenses include R&D and G&A expenses, but exclude stock-based compensation expense. Theravance will no longer recognize any Vibativ royalty and will record the remaining deferred non-cash amortization of the milestones associated with this collaboration in the first quarter of 2012.

Our Recommendation

We currently have a Neutral recommendation on Theravance. The stock carries a Zacks #3 Rank (short-term 'Hold' rating).

We hold that earnings reports are a non-event for Theravance as investor focus will be focused on the pipeline programs with GlaxoSmithKline. Although Theravance's pipeline is quite impressive, we believe the main potential lies with the Relovair collaboration.

Relovair, if approved, will be positioned as a replacement for Glaxo's top-selling medicine Advair. In light of the mixed results from the studies, we remain cautious about the chances of Relovair gaining first-round approval. The FDA could ask the companies for additional data for the asthma indication. We believe that 2012 will be an important year for the company due to significant clinical catalysts. We therefore prefer to remain on the sidelines and watch how the year shapes up for the company.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GSK , NP , THRX

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