Theravance (THRX) has decided to raise funds by offering 7.5 million shares. Net proceeds are expected to be utilized for general corporate purposes including research expenses and debt reduction. However, the offer will increase the number of outstanding shares by 12%.

We believe the need for additional funds has arisen primarily due the advancement of the company’s Relovair Program in collaboration with GlaxoSmithKline (GSK). The program, currently in phase III studies, aims to develop a next generation combination treatment for patients with chronic obstructive pulmonary disease (COPD) and asthma.
The phase III program, to be conducted with more than 6,000 patients, is designed to evaluate the safety and effectiveness of the addition of a long-acting beta2 agonist (LABA) to an inhaled corticosteroid (ICS) in patients suffering from COPD. Enrollment has started for the study.
However, Theravance has faced certain hiccups with the asthma trial. The company announced recently that it was not certain about the US Food and Drug Administration’s (FDA) position on the Relovair program for asthma treatment. This could increase the time and costs involved in the trial.
In February 2010, the FDA issued certain safety norms for the use of LABAs on asthma patients. These were necessary as studies showed a higher risk of asthma symptoms, leading to hospitalizations of pediatric and adult patients. Some patients even died following treatment with LABAs.
The FDA has recommended the use of LABAs only in combination with an asthma controller medication. Since the Relovair program is a combination of a LABA and an ICS, we believe it will comply with FDA’s requirements.
We believe the Relovair program holds immense potential. It aims to replace one of Glaxo’s best selling drugs Advair, which recorded sales of £5 billion in 2009. However, the drug will go off-patent in the US in 2010 and in Europe in 2013.
Approval and launch of any compound under the collaboration will generate a strong royalty stream for Theravance and push the company towards profitability. We are Neutral on the stock.

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