Theravance Inc.’s (THRX) fourth quarter 2010 loss per share of $0.25 was narrower than the Zacks Consensus Estimate of a loss per share of $0.28 and the year-ago loss of $0.35. Earnings improvement was driven by better top-line performance and lower research and development costs. Revenue at Theravance increased 80% over the prior year to $6.9 million. Revenue was also slightly above the Zacks Consensus Revenue Estimate of $6 million.
For full year 2010, Theravance reported loss per share of $1.16, narrower than the Zacks Consensus Estimate of a loss of $1.19 and the year-ago loss per share of $1.34. Full year 2010 revenues of $24.2 million were marginally below the year-ago figure of $24.4 million and scraped past the Zacks Consensus Estimate of $24 million.
The Quarter in Detail
Revenues for the quarter primarily consisted of the amortization of deferred revenues received under the company’s collaborations with Astellas and GlaxoSmithKline plc (GSK). Theravance earned a royalty of $0.58 million on Vibativ from Astellas Pharma on net sales of $3.2 million. Vibativ is marketed in the US for the treatment of complicated skin and skin structure infections (cSSSI) and is under review in the EU for the treatment of nosocomial pneumonia and cSSSI.
General and administrative (G&A) expenses increased 15.6% to $7.4 million during the fourth quarter due to higher employee costs, while research and development (R&D) expenses decreased 4.9% to $17.5 million driven by a $2.7 million R&D reimbursement.
Pipeline Update
Theravance announced that the phase III program for Relovair, indicated for the treatment of asthma and chronic obstructive pulmonary diseases (COPD), has already enrolled over 9,000 patients of the 11,000 targeted. Theravance has an agreement with GlaxoSmithKline for the development and commercialization of Relovair. Relovair is a once-daily inhaled corticosteroid and a long-acting beta2 agonist combination medicine.
In February 2011, the companies announced the initiation of a large phase IIIb outcomes study with Relovair, which will evaluate survival benefit over placebo in 16,000 moderate COPD patients with a history or risk of cardiovascular disease. The results from this study are not expected to form part of the initial New Drug Application (NDA)/ Marketing Authorization Application.
In the same month, Theravance’s partner GlaxoSmithKline announced the initiation of a phase III program for 719/VI, a combination of two bronchodilator molecules currently under development – ‘719, a long-acting muscarinic antagonist (LAMA) and VI, a long-acting beta2 agonist (LABA). The LAMA/LABA combination is being studied for the treatment of patients with COPD.
Theravance is entitled to receive royalties on sales of both Relovair and LABA/LAMA without any cost obligations.
Theravance and partner GlaxoSmithKline also announced the initiation of a phase IIb study of GSK961081 (‘081) in patients with moderate-to-severe COPD. The candidate, comprising a single molecule, functions both as a muscarinic antagonistic and a beta2 receptor agonist (MABA).
In October 2010, Theravance announced encouraging proof-of-concept results from a mid-stage study on TD-1211 in patients with opioid-induced constipation. Theravance plans to move the candidate into phase II trials in 2011.
2011 Guidance
For 2011, Theravance expects operating expenses in the range of $105 million to $110 million. Operating expenses include R&D and G&A expenses, but exclude stock-based compensation expense.
Our Recommendation
We currently have a Neutral recommendation on Theravance. We believe the FDA approval of Vibativ will provide Theravance with some much-needed funds. Moreover, we anticipate that the Relovair and LABA/LAMA combination programs, in collaboration with Glaxo, hold immense potential and could be the harbinger of significant royalties for the company, if successful. Furthermore, the company’s collaboration agreement with Astellas Pharma will fetch royalties on global sales of Vibativ. However, given the fierce competition in the cSSSI market, we expect that initial sales ramp will be slow. Consequently, we continue to maintain our long-term ‘Neutral’ stance on the stock.
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