Glaxo Hikes Stake in Theravance - Analyst Blog

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British pharma giant GlaxoSmithKline ( GSK ) recently announced that it has completed the acquisition of 10,000,000 shares of biopharmaceutical company Theravance Inc. ( THRX ). Shares were acquired for approximately $21.2887 per share.

Theravance shareholders approved the deal at their Annual Meeting held on May 15, 2012. With this transaction, Glaxo increased its holding in Theravance to 26.7% from 18.3%. Glaxo currently owns 25,814,421 shares of Theravance.

The increased holding by the pharma major reflects its confidence in the Relovair program, under which the companies are looking to replace one of Glaxo's best selling drugs, Advair, by evaluating treatment options for asthma and chronic obstructive pulmonary disease (COPD).

We remind investors that in November 2002, GlaxoSmithKline had entered into a collaboration agreement with Theravance. Per the deal, the companies are looking to develop and commercialize a once-daily long-acting-beta 2 agonist (LABA) candidate both as a single agent and as a combination therapy for the treatment of asthma and/or a long-acting muscarinic antagonist (LAMA) for COPD. These programs are collectively known as the Relovair program (phase III completed).

Glaxo intends to seek approval for Relovair in the U.S. and Europe in mid-2012 for the COPD indication. The pharma giant also intends to seek European approval of the drug for treating asthma patients in mid-2012. Regarding the U.S. approval of Relovair for the asthma indication, Glaxo is in discussions with the U.S Food and Drug Administration (FDA). Furthermore, the LAMA/LABA program is undergoing phase III development for treating COPD patients.

Our Take

A major part of Glaxo's revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years.

We expect the company's top line as well as gross margins to remain under pressure in the coming quarters. In addition to generic competition, the U.S. health care reform and EU pricing pressure will continue to affect sales.

Glaxo is looking towards deals and acquisitions to drive growth. The company is focusing on increasing the rights on its partnered products and promising pipeline candidates, so that it stands to benefit more from their success.

A few days ago, Glaxo entered into an agreement to acquire 80.02% shares of a UK and Germany-based, privately-owned company, Cellzome, for a cash payment of £61 million (U.S. $99 million). Glaxo already owns 19.98% shares of Cellzome and after the completion of this deal will own the full company. The acquisition is expected to be completed on May 21, 2012.

Apart from this, Glaxo has launched a hostile bid to acquire the outstanding shares of Human Genome Sciences, Inc. ( HGSI ) for a cash payment of $13 per share.

Glaxo would get exclusive rights to Benlysta as well as other candidates such as darapladib and albiglutide, if it succeeds in acquiring Human Genome.

We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

GLAXOSMITHKLINE (GSK): Free Stock Analysis Report

HUMAN GENOME (HGSI): Free Stock Analysis Report

THERAVANCE INC (THRX): Free Stock Analysis Report

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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 Nasdaq, Inc.

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

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