Theravance Inc.
(
THRX
) reported second-quarter 2012 loss of 42 cents per share, slightly
narrower than the Zacks Consensus Estimate of a loss of 44 cents
but wider than the year-ago loss of 31 cents per share. The wider
year-over-year loss was attributable to lower revenues.
Revenues plummeted 77.6% to $1.4 million in the second quarter
of 2012 compared with the year-ago quarter, and also missing the
Zacks Consensus Estimate of $2 million. Revenues were hurt by the
termination of Theravance's global deal with Astellas for
Vibativ.
We remind investors that Astellas decided to call off its
collaboration agreement with Theravance, inked in 2005, in January
2012. With Astellas pulling out, supplies in the US have been hit.
Theravance was dependent on a single supplier for Vibativ. Unless
this issue is resolved, Vibativ supplies will continue to
dwindle.
Following the termination of the deal with Astellas, the
Committee for Medicinal Products for Human Use (CHMP) recommended
that the marketing approval granted to Vibativ for the nosocomial
pneumonia (NP) indication in September 2011, will be withdrawn due
to manufacturing issues. This will affect the top line since
Vibativ is Theravance's sole marketed product. Management stated
that if the issue is not solved promptly, the restoration of normal
supplies for Vibativ could stretch for a period of 1-2 years.
Vibativ is an injectable antibiotic, which is Theravance's sole
marketed product. The drug is used for treating adults suffering
from complicated skin and skin structure infections, resulting from
susceptible gram-positive bacteria, including both
methicillin-resistant and methicillin-susceptible strains of
staphylococcus aureus. Theravance is exploring options regarding
future Vibativ sales, which also includes finding a new partner for
the company.
Research & development (R&D) expenses were up 29.6% to
$29.5 million in the second quarter of 2012. The company's efforts
to develop its pipeline coupled with higher costs related to
employees pushed up the R&D expenses. General &
administrative (G&A) expenses for the reported quarter
increased 4.7% to $7.6 million. Higher external and
employee-related costs were primarily responsible for increased
G&A costs.
Outlook
The company expects adjusted operating expenses to be at the
higher end of the range of $120 million to $130 million in 2012. We
note that the guidance excludes stock-based compensation.
Our Recommendation
Currently, we are Neutral on Theravance. Our long-term stance is
in line with the Zacks #3 Rank (short-term Hold rating) carried by
the company. Though we are concerned regarding the challenges
currently faced by Theravance relating to Vibativ's supplies
following the termination of the deal with Astellas, we are
impressed by Theravance's pipeline.
In particular, we are positive on Theravance's collaborations
with
GlaxoSmithKline
(
GSK
) for respiratory candidates, which include FF/VI (proposed brand
names: Breo in the US and Relvar in the EU, formerly known as
Relovair), LAMA/LABA (UMEC/VI) and MABA (GSK961081). FF/VI,
currently under regulatory review, will be positioned as a
replacement for Advair on approval. Advair is one of Glaxo's
highest revenue earners with 2011 sales exceeding £5 billion.
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