Theravance Splits In Two, Investors Now Deciding Between Growth Potential and Income Print E-mail
By Brian Wilson, Lead Contributor   
Friday, 26 April 2013 02:09
Today we saw an interesting development for San Francisco-based biopharmaceutical company Theravance Inc. (NASDAQ: THRX) ahead of the PDUFA goal date of May 12, 2012 and after a positive adcom vote on the NDA submitted by partner GlaxoSmithKline (NYSE: GSK) for the Chronic Obstructive Pulmonary Disease (COPD) drug Breo. As published on 4/18/2013, here were the results of the vote:

Vote Outcomes:

Question 1: Meaningful benefit to treat airflow obstruction

For: 12


Question 2: Benefit in reduction of exacerbations

For: 8

Against: 5

Question 3: Safety demonstrated

For: 10

Against: 3

Question 4: Approval in treatment of airflow obstruction in COPD

For: 9

Against: 4

Question 5: Approval for reductions in COPD Exacerbations

For: 9

Against: 4


Note that the NDA was for the COPD exacerbations indication, with the asthma indication is still undergoing clinical development.

Theravance rallied nearly 16% in direct reaction to this news, as the positive adcom vote fanned the flames of buyout speculators betting on a full acquisition of THRX by GSK. It seemed almost certain due to the fact that GlaxoSmithKline already owned about 27% of the company’s stock, and due to the intense interest that GSK has in the respiratory space. Piper Jaffray speculated that the trigger for the acquisition would be the adcom vote itself.

Everything was changed after a press release earlier today, where Theravance announced its plans to split its late-stage partnered respiratory assets from its biopharmaceutical operations. They will do this with a company split, with the developmental/biopharmaceutical company retaining the Theravance name. The other business, which is currently referred to as “Royalty Management Co.”, will (as its name implies) manage royalty payments from the respiratory drug programs under collaboration with GSK with the intent to consistently return capital to shareholders. Theravance has verified that these will both be public companies with very different goals. From the press release:

"Following a review of alternatives to maximize the value of our portfolio, we have decided to separate our biopharmaceutical discovery, development and commercialization operations from our late-stage partnered respiratory assets," said Rick E Winningham, Chief Executive Officer. "We believe this separation will provide investors with the opportunity to unlock potential value from two disparate sets of assets, better align employee incentives and provide a consistent return of capital to stockholders of Royalty Management Company."”

This is very different from Wall Street’s initial expectations, although this maneuver makes it extremely easy for GlaxoSmithKline to acquire the full rights to Breo by buying up the remaining shares of Royalty Management Co. The actual split is expected to occur in late 2013 or early 2014.

The New Theravance

Without the collaborative revenue potential of their COPD/Asthma drug, we will see Theravance become a smaller company. They will retain Rick E Winningham as CEO, although an undetermined number of employees will be moved to Royalty Management Co.

This leaves Theravance with four pipeline compounds (past proof-of-concept) that can build value for investors over the next few years:

TD-4208 : Theravance’s unpartnered COPD drug, which will be a once-daily inhaled long-acting muscarinic antagonist (LAMA) agent

TD-1792 : an antibiotic that combines the mechanism of action of glycospeptides and cephalosporins in a single molecule. This is a partnered compound, but could be a source of substantial product revenues due to its target indication (Gram+ infections)

TD-1211 : a mu opioid inhibitor that is being developed for opioid-induced constipation (OIC) – a condition that is very common and unpleasant for patients on pain medications but difficult to treat in some cases

TD-5108 (velusetrag) : a 5-HT4 agonist being developed for gastroparesis (a condition where patients cannot empty their stomachs due to disfunction of the GI tract). This is another partnered compound.

The Takeaway

The market was generally expecting an acquisition of Theravance by GSK due to the larger pharmaceutical company’s interest in Breo and the respiratory drug sector, although we ended up seeing a split of Theravance instead. This may have been because GSK did not want to acquire the rest of Theravance’s pipeline.

Investors will end up with two companies with polar opposite personalities. Theravance will be a development stage pharmaceutical company, while the unnamed “Royalty Management Co.” should provide a steady stream of income from Breo sales by GSK under the terms of the collaboration agreement.


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