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The diversified drug developer Theravance (THRX) and its investors are patiently awaiting the results of an FDA advisory committee meeting scheduled for March 7, 2013, which is generally expected to yield some positive feedback on the NDA that the company submitted for the COPD/Asthma drug Breo in 2012.

Ahead of the event, the stock has moved up quite drastically, helped by Piper Jaffray's rumors of a full acquisition of the company by GlaxoSmithKline (GSK).

Although the PDUFA goal date for Breo isn't until May 12, 2013, Piper Jaffray seems to be under the impression that a positive adcom vote could trigger a full acquisition. How large the acquisition premium would be is still being hotly debated, although it seems that a portion of these potential gains has already been baked into the share price. Indeed, without an adcom vote, THRX has risen about 20% this week, adding hundreds of millions to the market value of the company.

While I agree with the notion that the FDA advisory committee should give an overall positive vote on the NDA given the efficacy and safety profile that has been established by Breo in the phase III trials conducted by GSK, the rumor/thesis that was put out by Piper Jaffray removed what could end up being a significant portion of the upside potential that THRX had with the adcom vote. On the other hand, I think there is substantial upside potential for THRX in the event that it actually gets fully acquired by GSK in the near future.

This is largely based on the huge COPD target indication, which gives Breo huge peak sales figures in the 20+ million U.S. patient population by itself. If you factor in the enormous marketing budget potentially provided by GSK and the easier reimbursement process with big pharma association, Breo sales of $700 million to $1 billion are reachable within 2-3 years.

Certain analysts have much higher expectations for Breo, although I think they are underestimating the drug's penetration and pricing power, even with its once-a-day advantage.

While Breo does not introduce a new mechanism of action to the treatment of COPD, it does offer a once-a-day treatment that has shown non-inferiority against its competitors and combines a long-acting beta2 agonist (LABA) known as vilanterol with a corticosteroid known as fluticasone furoate. Although the "once-a-day" advantage seems to be a small factor in a much bigger fight for the COPD/Asthma market, patients and doctors have repeatedly shown a preference for simplifications of patient drug regimens.

Having said this, I think investors should be careful about M&A speculation as a rule of thumb. While GSK has incentive to buy the rest of Theravance to simplify and integrate the commercial development phase of Breo, I think there's a better chance that that it will wait for the FDA approval in May to confirm that the drug's future is intact. In addition, I think it's important to realize that FDA advisory committees remain fairly unpredictable. Even with FDA approvals on the rise, we saw a panel reject DepoMed's (DEPO) Serada with a 2-12 vote on the NDA (as detailed in yesterday's article). That was one of the many instances where the stock market's predictions collided with the opinions of doctors who actually have to prescribe these drugs to patients.

Still, the overall profile of Breo seems quite solid, and I would be very surprised if Breo has a similar experience to Serada on Thursday. A surprise advisory committee rejection of Breo would be devastating to Theravance at the company's current market capitalization, and would likely remove any chance of a full GSK acquisition.

Source: Buyout Speculation Drives Up Theravance Ahead Of FDA Advisory Committee Meeting