Zacks_Analysts' Blog : Theravance Remains Neutral - Analyst Blog

We have maintained our Neutral recommendation on Theravance, Inc. (THRX) with a target price of $24.00 per share following the announcement of first quarter 2011 financial results.

Theravance’s first quarter 2011 loss per share of 28 cents was in line with the Zacks Consensus Estimate, but narrower than the year-ago loss of 35 cents per share. Revenues at Theravance increased 10% year over year to $6.3 million. An increase in royalty revenues from Vibativ sales in the reported quarter was attributable for both the jump in revenues and the narrower year-over-year loss per share. However, total revenue was below the Zacks Consensus Revenue Estimate of $7 million.

Theravance has active collaborations with GlaxoSmithKline (GSK) for the Relovair, LAMA/LABA (also called 719/VI) and MABA programs. The Relovair program holds the biggest potential in the company’s pipeline, which aims to replace one of Glaxo’s best selling drugs, Advair. It is being developed for the treatment of chronic obstructive pulmonary diseases (COPD) and asthma. The LAMA/LABA combination is also being developed for the treatment of COPD. Under the MABA collaboration, Theravance is making rapid progress with GSK961081, which could be another important option for the treatment of COPD. If successful, this portfolio of respiratory products could put Theravance in a very competitive position. Theravance is entitled to receive royalties on sales of Relovair, LABA/LAMA, and MABA without any cost obligations. We believe the revenue generated following the approval of any of the programs will ultimately lead the company to profitability.

Theravance, on its own, has a deep pipeline consisting of candidates like TD-5108 (chronic constipation), TD-1792 (cSSSI), and TD-1211 (opioid-induced constipation), which could boost future revenues. All these programs are solely owned by Theravance and it is looking for collaboration partners for the development and commercialization of these compounds.

Theravance’s lead drug, Vibativ (telavancin), is an injectable antibiotic approved for the treatment of complicated skin and skin structure infections (cSSSI), caused by gram-positive bacteria, including resistant pathogens such as methicillin-resistant staphylococcus aureus (MRSA). Vibativ is being marketed and sold by Astellas, while Theravance receives royalties, ranging from high teens to upper twenties depending on sales volume. The US Food and Drug Administration’s (FDA) approval to market Vibativ is a significant achievement for the company which will provide Theravance with much-needed funds.

Vibativ is also being studied for hospital-acquired pneumonia (HAP) or nosocomial pneumonia (NP). Though the antibiotic has not been approved for NP in either Canada or the US, the drug received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) for the NP indication in late May 2011. If approved, this will be the first approval for the treatment of NP, which is associated with high mortality rates. In US, Theravance received a complete response letter (CRL) for the NP indication from the FDA requesting for additional data. The company is currently in discussions with the FDA and has no plans to conduct additional studies. Though we are encouraged by the positive CHMP opinion for Vibativ for NP, we are disappointed with the CRL received in the US.

In addition, we are concerned about competition from other drugs targeting gram-positive bacterial infections. Vibativ is competing with ViroPharma’s (VPHM) Vancocin, Cubist Pharmaceutical’s (CBST) Cubicin, Pfizer’s (PFE) Xyvox and Tygacil and Forest Laboratories’ (FRX) Teflaro. Consequently, we apprehend that Vibativ’s initial sales ramp would be slow. We, therefore prefer to remain on the sidelines on the stock.