Why Theravance Inc. Vaulted 15% Higher in October
What: Shares of Theravance , a healthcare royalty company, bounced back from their huge downward move in September , moving more than 15% higher during the month of October, according to data from S&P Capital IQ.
So what: Investors found relief in the third-quarter earnings reported last month. The company earned royalties from the sales of Relvar/Breo Ellipta and Anoro Ellipta, which are sold by GlaxoSmithKline , of $16.8 million during the period, a strong 21% growth over last quarter's results. That allowed it to show income from operations of $8.4 million, though its huge interest expense still continues to weigh on financials and forced it to show a net loss of $4.6 million, or $0.04 per share, during the quarter.
While the news of the uptick in sales is certainly encouraging, the big news was that the company would be replacing its quarterly dividend with a $150 million share repurchase program, effective through the end of 2016, which confirms suspicions we've had about the company for some time . It followed up that announcement by offering up to $75 million for its common stock via a "modified Dutch auction" tender offer, which could allow it to buy back its stock between $8.50 and $9.25.
With shares trading near an all-time low, I think the market was relieved to finally have an answer to its ongoing dividend dilemma, which helped to send shares higher.
Now what: In the release, Michael W. Aguiar, CEO of Theravance, stated:
This share repurchase plan coupled with our ongoing collaboration with GlaxoSmithKline to maximize the value of Relvar/Breo Ellipta and Anoro Ellipta is designed to allow us to optimize long-term stockholder value.
Count me in the group that applauds this capital allocation decision, as a share repurchase program gives the company far more financial flexibility than an ongoing dividend payment. That should give Theravance the time it needs to finally reach profitablility.
GlaxoSmithKline continues to grow sales of Relvar/Breo Ellipta nicely, as sales were up 44% from the prior quarter in the U.S., though by a much smaller 7% in Europe. Still, the numbers are moving in the right direction, and Relvar/Breo Ellipta is now approved in 73 countries for marketing and has been launched in 42, which bodes well for future growth. Anoro Ellipta should add to that total as well as sales grew 38% compared to the prior quarter and it is approved in 61 countries for marketing and has been launched in 33.
While the news of the share repurchase and fast growth should certainly be cheered by its investors, Theravance continues to have a balance sheet that is far too debt-heavy for my liking, so I'm content to remain on the sidelines.
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