Loss at Theravance Wider Than Expected

Theravance, Inc.’s (THRX) fourth quarter 2013 loss of 46 cents per share was wider than the Zacks Consensus Estimate of a loss of 40 cents per share and the year-ago loss of 33 cents. The wider year-over-year loss was due to lower revenues and higher costs.

Full year 2013 revenues were 4.8 million, below the Zacks Consensus Estimate of $7 million. Loss widened to $1.67 per share from 20 cents in 2012 due to lower revenues and higher costs. The Zacks Consensus Estimate for 2012 hinted at a loss of $1.60 per share.

We note that 2012 revenues of $136 million included the recognition of an upfront payment of $4.4 million from Merck & Co. Inc. (MRK). The agreement with Merck was terminated in Dec 2013. Revenues in 2012 also included the recognition of deferred revenue worth $125.8 million pertaining to Theravance’s erstwhile agreement with Astellas on Vibativ. The partnership was terminated in Jan 2012.

Revenues in the final quarter of 2013 declined to $1.6 million from $5.8 million a year ago. Revenues in the fourth quarter of 2013 were well short of the Zacks Consensus Estimate of $4 million.

Research & development (R&D) expenses were up 19.6% to $33.6 million in the fourth quarter of 2013. The increase in R&D expenses was primarily attributable to the company’s efforts to develop its pipeline. General & administrative (G&A) expenses for the reported quarter more than doubled to $16.5 million primarily due to costs incurred by the company pertaining to its plan to split into 2 entities.

Theravance is working on completing its proposed separation into 2 separate entities. The process is expected to be completed by early 2014.

We remind investors that in Apr 2013, the board of directors at Theravance approved its decision to split into two separate publicly traded companies. While one company (Royalty Management Company) will focus on the development of the respiratory candidates (under Theravance’s agreement with GlaxoSmithKline (GSK)) and associated royalties from the sale of approved drugs under the partnership, the other (Theravance Biopharma) will focus on the discovery, development and commercialization of small-molecule therapies targeted towards areas of high unmet medical need.

In Dec 2013, the second drug under the Theravance/Glaxo partnership was approved when the U.S. Food and Drug Administration (FDA) cleared Anoro Ellipta (once daily) as a long-term maintenance therapy for airflow obstruction in patients suffering from chronic obstructive pulmonary disease (COPD) including chronic bronchitis and/or emphysema.

We remind investors that in Oct 2013, Glaxo and Theravance had launched Breo Ellipta for COPD in the U.S. The drug gained EU approval in Nov 2013 under the trade name Relvar Ellipta for asthma and COPD.

Theravance, a biopharmaceutical company, carries a Zacks Rank #3 (Hold). A better-placed biopharma company is Alexion Pharmaceuticals (ALXN) with a Zacks Rank #1 (Strong Buy).

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