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Theravance Inc. (NASDAQ:THRX)

Q1 2014 Earnings Conference Call

May 6, 2014 5:00 AM ET

Executives

Michael W. Aguiar – Chief Financial Officer, Senior VP & Head-Investor Relations

Rick E. Winningham – Chairman & Chief Executive Officer

Mathai Mammen – Senior Vice President of Research & Early Clinical Development

Analysts

David Friedman – Morgan Stanley & Co. LLC

Brian P. Skorney – Robert W. Baird & Co., Inc.

Ronny Gal – Sanford Bernstein

Stephen D. Willey – Stifel, Nicolaus & Co., Inc.

Operator

Ladies and gentlemen, good afternoon. At this time I would like to welcome everyone to the Theravance conference call. During the presentation all participants will be in a listen-only mode. A question-and-answer session will follow the company’s formal remarks. (Operator Instructions) Today's conference call is being recorded.

And now I would like to turn the call over to Mike Aguiar, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Michael W. Aguiar

Good afternoon everyone and thank you for joining us. With me on the call today is Rick Winningham, our Chief Executive Officer and Mathai Mammen Senior Vice President of Research and Early Development.

The focus of our prepared remarks will be announcement of May 15 record date f Theravance strategic separation and our intention to initiate a quarterly cash dividend to stockholders Theravance. While we will not be covering our programs or the quarterly financial result in depth during our prepared remarks, we will be happy to answer any questions on these topics during the Q&A session.

Earlier today Theravance issued a press release announcing recent corporate development detailing and first quarter 2014 results. A copy of the press release can be downloaded from our website or you call Investor Relations at 650-808-4100 and we will be happy to assist you.

Before we get started, we would like to remind you that this conference call contains forward-looking statements regarding future events and the future performance of Theravance. Forward-looking statements include anticipated results and other statements regarding Theravance’s goals, expectations, strategies and beliefs. These statements are based upon the information available to the Company today and Theravance assumes no obligation to update these statements as circumstances change.

Future events and actual results could differ materially from those projected in the Company’s forward-looking statements. Additional information concerning factors that could cause results to differ materially from our forward-looking statements is described in greater detail in the Company’s Form 10-Q filed with the SEC.

I’ll now turn the call over to Rick Winningham, our Chief Executive Officer. Rick.

Rick E. Winningham

Thank you, Mike and good afternoon everyone. The past few months have been very exciting and an important time at Theravance on both the program and strategic level. Strategically we’ve made significant progress on our separation highlighted by the announcement of a May 15 record date for the dividend of ordinary shares of Theravance Biopharma to be paid to the Theravance’s stockholders to affect the separation. We also recently completed the $450 million, 9% non-correspondent note royalty financing.

Additionally we are announcing today Theravance’s intention to initiate a $0.25 per share quarterly dividend for stockholders of Theravance following the separation. We’ve also had a number of positive program developments recently, which I will not be covering in detail on the call including the U.S. launch of the ANORO for the treatment of COPD.

GSK’s intention to file BERO for the treatment of asthma in the U.S. later this year and two positive Phase II studies with our earlier stage assets, one with TD-9855 for the treatment of fibromyalgia second in our partnership with Alfa Wassermann with velusetrag for the treatment of gastroparesis.

Overall, I am pleased that were poised to complete the separation in the coming weeks and more importantly that both companies are very well positioned financially and strategically for the future. I will begin my discussion with the separation. We are currently targeting a separation date of June 2, when shares of Theravance biopharma will be disrupted the stockholdes of Theravance. This is combination of the significant amount of work over the past year and final step in the separation.

Over the next few weeks, we expect to make additional stockholder communication including the filing of final Form 10 with the SEC and mailing of stockholder information statement. After the May 15, record date we expect Theravance shares and trade ex dividend and Theravance biopharma shares to begin a one issue trading.

The first company Theravance, royalty management company, which I will refer to simply is Theravance is targeting stockholders we see capital returns from dividend payouts which we intended to go over time. And potential future share repurchases. Theravance will be well capitalized with the net proceeds of approximately $434 million from our recently completed non-recourse royalty notes thus any approval on launch milestones pay to GSK prior to the separation.

The respiratory products partner with GSK RELVAR BREO, ELLIPTA, and ANORO ELLIPTA, are in the process of the global launch into multi billion dollars respiratory market. The strategic objective of Theravance it’s managed all of the development and commercial responsibilities under its respiratory partnership agreements with GSK and associated royalty revenues with the intention of providing capital returns to stockholders.

As a result of a strong cash position and confidence in the potential of these respiratory programs again we announced our intention to initiated $0.25 per share quarterly dividend following the separation which we intend to grow over time. Regarding RELVAR BREO as of April 25, 2014 this medicine is going to proved in 42 countries for marketing and there has been – then launched in 12 countries across North America, Europe and Asia. Total net revenue for RELVAR BREO during the first quarter with approximately $4.9 million with royalties payable to Theravance of approximately $730,000.

GSK and Theravance remain very optimistic about BREO’s potential. Regarding the launch in the U.S. Andrew Witty noted last week in GSKs really call that while it is been a slow start the underlying trends look good the leading indicators look promising and significant progress on reimbursement has been accomplished since the beginning of the year.

In particular GSK stated that they had 70% Medicare Part D coverage for BREO as April 30 up from low-single digits in January. And that 50% of patients are currently covered in commercial plans. Also direct to consumer advertising is now underway in the U.S. GSK announced its intention to file BREO for asthma in the United States in 2014. Needless to say the decision to proceed with the U.S. asthma filing is a very important milestone for the GSK Theravance respiratory collaboration. In progress continues with Salford studies as well as summit.

Our second respiratory program with GSK ANORA ELLIPTA was launched in the U.S. last week and it’s now available in U.S. pharmacies. Although it is very early as GSK noted during its call we are in good position with a Part B book of business compared to where BREO was at this point in time and its launch phase.

An EU and ANORA received a positive opinion from the European medicines agency committee for medicinal products for human use in February 2014 recommending marketing authorization for UMEC/VI under the proposed brand-name ANORA. As it once daily maintenance bronchodilators treatment to release symptoms and adult patients with COPD and we expect to hear a final decision from the EMA shortly.

Now turning to the second company Theravance Biopharma which I will refer to simply as biopharma. Biopharma is targeting shareholders to seek capital appreciation associated with the progress in research development and commercialization activities in our pipeline.

Biopharma will also be well-capitalized with approximately $400 million following the separation and we will be focus on small molecule product candidates and infectious disease central nervous system and pain, respiratory disease and gastrointestinal disease. Additionally Theravance biopharma will have rights to 85% of the economics, from UMEC/VI FF also know as diamond MABA FF and MABA monotherapy and any other product that maybe developed in the future under these agreements with GSK.

We were very excited about the prospects of biopharma following the separation based on a robust pipeline and proven R&D capabilities. We’ve had a number of positive clinical events for the programs residing in biopharma including two recent positive to say studies one with 9855 our dual serotonin and norepinephrine reuptake inhibitor in the treatment of fibromyalgia in the second with Velusetrag with partnered with Alfa Wassermann gastroparetic.

In addition we got two other product candidates currently in Phase II, TD-4208 nebulizer long acting Muscarinic Antagonist for the treatment of COPD and TD-8954 a 5-HT4 agonist delivered for the – feeling intolerance.

And finally we are making good progress with Vibativ our commercialize antibiotic for the resistant Gram-positive infections which was reintroduced into the U.S. market late last year. in addition in February GSK communicated its intention to take the triple therapy, UMEC/VI, FF also known as diamond in the Phase III. The portfolio of programs provided number of potential catalyst for biopharma following a separation.

Overall, I’m pleased with the execution of our previously communicated strategy, the distinct strategic opportunities for each company and a strong financial position for both entities.

Since we announced our strategy to separate the companies a little over a year ago we’ve had three product approvals, multiple product launches, we’ve initiated a capital return strategy, we’ve adjusted our capital structure to facilitate the royalty monetization strategy and we’ve made significant across our pipeline with 9855, 4208, 8954, 5108 as well as BREO and Asna and diamond the close triple therapy.

So with that I’ll turn it over to Mike our Chief Financial Officer. Mike.

Michael W. Aguiar

Thank you Rick and good afternoon everyone. Today I’ll provide a very brief comments on the financial results for the quarter ended March 31, 2014. before discussing the results, however, I would like to note that due to upcoming separation of Theravance into two publically traded companies, we will not be providing financial guidance at this time. Our current expectation is each company will provide financial guidance following the separation.

For the quarter ended March 31, 2014, Theravance had a net loss of $67.7 million or 52% per share. Total first quarter 2014 non-GAAP operating expenses were 449.3 million. As a reminder non-GAAP expenses include – exclude stock base compensation expense and cost associated with separation activities. Product sales data in the first quarter of 2014 were approximately $0.9 million which includes amount that were previously differed.

Global sales of Bravo Brio totaled approximately $4.9 million, during the first quarter resulting in gross royalty revenue of approximately $730,000 from GSK. Of note royalty revenue was reduced by and amortization expense for intangible assets of $1.8 million, related to approval and launch milestones that we have paid GSK. Our cash, cash equivalents and marketable securities position totaled $430.8 million as of March 31, which is not include net proceeds of approximately $434 million related to the recent sale of non-recourse royalty notes.

This cash balance represent a decreased of approximately $89.7 million during the quarter, primarily due to registration and launch related milestone payment to GSK of $55 million and cash using operations which will partially offset by net proceeds of $18.3 million received from issuance of our common stock.

Now, I will turn the call back to Rick for final closing comments. Rick.

Rick E Winningham

Thank you, Mike. It’s been a productive quarter for Theravance and with today’s announcements on the separation record date it will remain on track to complete the separation this quarter. Again, we believe the both Theravance and royalty management company and Theravance Biopharma are well-positioned in 2014 and beyond with adequate financial capitalization, strong product portfolios and significant strategic opportunities. Initially we believe both organizations will have strong Board of Directors, strong senior management teams and deep sets of key functional scales relevant for each business.

Looking forward each company will have a number of important near-term catalysts. At Theravance further launches in major markets for RELVAR potential further approvals in launches for ANORO and the U.S. asthma filing for BREO as well as our capital return strategy, highlighted today by a commitment to pay a cash dividend with the objective to grow the dividend over time.

Additional share repurchase maybe used opportunistically in the future. At Theravance biopharma we look forward to the Phase IIb results from TD-4208 and CPOD continued commercial progression [indiscernible]. GSK’s initiation of Phase III program with UMEC/VI FF, on the potential for additional partnership and progression of other programs in our pipeline.

Before concluding I would like to thank the Theravance team for their extraordinary level of focus and commitments since our announcement of the separations slightly over a year ago. Given the significance in the change and operating structure and its going on administrative resources required to accomplish and separation, it would have been easy to become distracted with the project level. The various Theravance teams have remained extremely focused and delivered on key goals.

From working closely with GSK on the various committees to ensuring long-term success the multiple GSK and Theravance respiratory programs to by that a team we achieved that approval and put by beta back on the U.S. market to the multiple development teams that delivered on clinical and regulatory milestones of the research organization this push forward into new one exciting areas from which compounds will enter the clinic in the coming months and years. We look forward to completing the separation over the next few weeks and most importantly we are very excited and energized about the future opportunities for both companies.

And now I would like to turn the call over to the conference facilitator and open the call for questions.

Question-and-Answer session

Operator

Thank you, sir. (Operator Instructions) We’ll have our first question from David Friedman of Morgan Stanley.

David Friedman – Morgan Stanley & Co. LLC

Hi, thanks for taking my question. I was wondering if you could just talk a little bit about the tax implications of the upcoming split and whether the full tax burden of the split is going to be borne by shareholders or whether the royalty co will incur a specific tax and is there a way to help understand what that might be? Thank you.

Rick E Winningham

Yes, thanks for the question, David. So the transaction the taxable transaction it has always been addition to be a taxable transaction at the corporate level. We currently believe that whatever the taxable impact is at the corporate level will be offset by our existing and well balanced.

From a shareholder level it is taxable as well. Both of these levels of taxation will depend upon the initial trading value or Theravance Biopharma the higher trades, the higher of the potential tax burden in lower trades the lower the tax burden. With regard to specifics for shareholders, the way the tax is ultimately going to be assessed is going to depend upon this trading value and the 2014 annual earnings in profits from Theravance Inc. not – net income but earning and profits for the taxable earnings is opposed to GAAP earnings.

Whatever proportion of earnings and profits are on a per share basis we will be taxed at a normal dividend rate for the individual shareholders. Once you work through the earnings and profits whatever is left will more likely did not be a return of basis related to the Theravance basis that an individual shareholder has in their Theravance shareholdings, in the event they would actually work through their basis returning to capital gains, I think that would be a relatively rare phenomenon where an individual shareholder will work through the basis in their stock. So ultimately it will depend upon the trading value Biopharma we will have to just wait and see where that’s rolled out.

David Friedman – Morgan Stanley & Co. LLC

Okay great thanks.

Operator

Our next question comes from the line of Steve Byrne from Bank of America.

David Friedman – Morgan Stanley & Co. LLC

With respect to the Phase III program for the close triple, has it been determined which two components are going to co-formulated together into one strip in the ELLIPTA device. Is it UMEC and Vilanterol together?

Rick E. Winningham

Thanks Steve, this is Rick Winningham. We haven’t communicated that; I would just stay turned for future announcements on the progression of the studies.

David Friedman – Morgan Stanley & Co. LLC

And what is holding up starting at this plan, are there any specific dating events?

Rick E. Winningham

Not that we are aware of, I mean I think GSK communicated the intention to move forward with the triple therapy and the Phase III in the first quarter as you might imagine, given that it is a triple therapy is relatively complicated, you will be at relatively complicated Phase III program and that would be targeted in order to maximize the value of the medicine to patients, but no nothing that we are aware of is significant in terms of standing in the way so, I would just say stay tuned.

David Friedman – Morgan Stanley & Co. LLC

Okay and yes indeed it is UMEC and Vilanterol together on one side you essentially ANORO on one side, what at that point would you see as the differentiation between say MABA down the line versus ANORO together on in one strip. How would you compare those two drugs at that point?

Rick E. Winningham

Well I think that’s a terrific question, I think we remain very excited about MABA and the potential to combine MABA with FF potentially in the future other type anti-inflammatory or some other medicine that might facilitate patient treatment in repository disease. I think that you know MABA just because it is a single entity and a single compound provides certain level of flexibility that may not be prevalent, might not be present with the combination that would effectively be line ANORO.

I think it’s important to understand that enormous significance to the market. That were talking about in a global basis and the opportunity that we may have with GSK over time to address really multiple segment of the market all the segments to the market in COPD and potentially a number of segments in asthma with the portfolio. So I think we look forward to that I think we believe that there some inherent benefits regarding MABA and MABA as a platform for future drug development. The close triple has a head of where MABA is right now, but I think we remain pretty optimistic about both.

David Friedman – Morgan Stanley & Co. LLC

And just to that point Rick, what would see as the gating events to starting the Phase III program in MABA?

Rick E Winningham

Well, that we – as we announced previously we are switching the product over to ELLIPTA. The ELLIPTA platform some additional work has been required there and the teams from GSK at Theravance for working through that that transfer the platform and I, hope to be able to bring it more information about that end up coming calls.

David Friedman – Morgan Stanley & Co. LLC

Okay thank you.

Operator

Our next question comes from the line of Brian Skorney of Robert W. Baird.

Brian P. Skorney – Robert W. Baird & Co., Inc.

Hey, good afternoon guys. Thanks for taking my questions. I guess just one we think about the dividend that you announced today and return cash to shareholders. How do view any sale of the royalty interest in the future would you anticipate that just resulting in the dividend increases that are you speculating or come and eventually or would you think about a special dividend and you said did mentioned that might you some share repurchases, but that you know how do you think about the best methodology for returning cash to shareholders and what sort of deals if you talk in the future how that influence, how you would do it?

Rick E Winningham

Yes, Brian thanks for that it’s a great question. We look that pretty closely as I think everybody knows one of the initial strategies we laid out when we announce separation about year ago was that the intention of the Theravance the royalty management side was to find a way to return significant portion of capital back to shareholders.

Generally the two ways to do it, your dividends and share repurchases we look at both of those quite closely here and I think there are our opportunities for both of them in the future of Theravance royalty management company. With regard to dividends, there are two ways again to do you sort of have an option to create recurring dividend what we initiated here today or you would do some sort of special dividend.

I think general if here we are not particularly bond a especial dividend I think there is much more value to be created in a recurring dividend, but I think the unlikely at least today to see a special dividend going forward. With regard to the current strategy here, and how we thought about this, say vis-à-vis share repurchases, this is something we look at pretty closely and in particular with our board, I think most folks know we have a very financially astute board, who have lots of inside and experience in this particular area.

I think when you look at them sort of Finance 101 at times could suggest that a share repurchase is appropriate if you have an undervalued stock and do you have a desire to reduce the overall share count of standing . I think the down side of share repurchases is generally – I’m not aware of a lot of funds that have an objective of purchasing securities where a company is intent on repurchasing shares. It is not generally an investment thesis that I'm aware of, so the investment targeting is not particularly good on that.

With regard to dividends I think dividends today are something that the market values quite highly in particular that’s generally seen a commitment, that the company is making to not only maintain but to increase the dividend over time. And as you know there are a number of funds who actively seek out those types of investments. So there is a better opportunity for targeting specific type of investors here. So at a very high level that was thought process that went into here.

The last part of your question was regarding the potential for future monetization's additional future financial restructuring, the answer to that is absolutely, we're always keeping our option open on this, clearly as you look forward there will be opportunities as the financial picture continues to improve for the company to potentially leverage up additional debt equity ratio, to get the company in a little more appropriate overall capital structure for a company of this type and potentially do additional royalty work as well should the right opportunity come up whether it’s a sale or something else.

I think the final point I would like to add is that this recently completed royalty monetization was really a terrific deal. We're quite pleased to get this done. I think a number of folks are familiar with the terms and this market the terms we got were extremely favorable 9% is one of the lowest coupon rates that has been done for one of these deals and certainly the lowest for a similar combination of products. And importantly we have relatively favorable terms and prepayment penalties and things like that.

So sitting here today we're very pleased to get this done, it allows the process to begin of returning capital and it provides a tremendous amount of flexibility not only from capital structure potential of the refinance, but also to manage the overall dividend going forward. So, I think overall we're feeling pretty good about it, hopefully that covered the question you had answered.

Brian P. Skorney – Robert W. Baird & Co., Inc.

Yes, yes, it didn’t actually answer my second question, but real quick, I just had one last one. You said earlier that you would capitalize Theravance Biopharma at $00 million in cash, but I think the prior guidance was $300 million so is this a change and what brought about that decision?

Michael W. Aguiar

So it is a change that the prior guidance we would be giving in the Form 10 was for approximately $300 million, that being said we’ve been pretty consistent with our communication that the – really optimal way to set up biopharma for success was to ensure that as much capital ended up over there as possible in the separation to remove what everybody knows is frequently a financing overhang for the initial trading of these companies that there is not enough cash there. So the intention is that Rick and I have had all along was to put as many dollars into biopharma as we could.

In terms of what has changed at, the biggest single piece of course was recently completed royalty financing which enable us to lead the entire net proceed from that royalty note in the Theravance Inc side of the business and be able to put the rest of the capital over into biopharma. So this is something that we had our eyes on, I’m extremely happy we are able to do this, because its going to give biopharma the maximum probability being successful.

Brian P. Skorney – Robert W. Baird & Co., Inc.

Great thanks guys.

Michael W. Aguiar

Thanks Brian.

Operator

Our next question comes from the line of Ronny Gal from Bernstein.

Ronny Gal – Sanford Bernstein

Good afternoon gentlemen and thank you for taking the call, I guess three. The first one is around the timing of the trials, so now that somewhat is finished recruiting, when do you expect to essentially based on current event rate completion of summit and can you give us a refresher on when do you expect the [indiscernible] trial. Second expectation of LAMA/LABA competition if you can just review towards how you think about the sales right now and last one, should we just assume Vilanterol is not going to launch as a single agent and if it could what geographies would you launch at?

Rick E Winningham

So I’ll take the first one Vilanterol, no that we intend on bringing Vilanterol forward as a single agent an important part of the overall – and the clinical work armamentarium required for Vilanterol has been completed as part of the studies BREO as well as ANORO. So no Vilanterol very much I think we can fit into a space in the over armamentarium of the treatment of COPD patients.

Ronny Gal – Sanford Bernstein

Global launch?

Rick E Winningham

Pardon me?

Ronny Gal – Sanford Bernstein

Global Launch.

Rick E Winningham

Well I would assume so, eventually, we need to file first and then but clearly the product, the data on the product is out there and part of all of the previous ANORO studies so everyone knows quite well how it will performance ones a day product and there may be certain patients with COPD that actually benefit as specifically from the long-acting beta agonist. I will turn the summit in the Salford study over to Mathai.

Mathai Mammen

Hi, on Salford in summits, Salford to study that’s taking place with COPD and separately in asthma in kind of Salford in that region in the U.K. and that continues to recruit albeit at add more slowly been I guess originally in this stated when the [indiscernible] our plan is have top line data in 2016 from that study for COPD. And then for summit, summit as a reminder the study that enrolls patients with COPD but with cardiovascular risk factors and that’s a very, very important to exciting study for us and that enrolling and gain 2016 will be looking at some beta2.

Ronny Gal – Sanford Bernstein

Some its completed enrollment.

Rick E Winningham

It has a data enrollment.

Michael W. Aguiar

It will be he is talking about data it’s a big driven study so that’s for best gas for the timing of events.

Mathai Mammen

Dividend events relate study its timing of bit variable.

Ronny Gal – Sanford Bernstein

Okay. So Mathai last question I believe that LAMA/LABA and competition obviously it’s a new ones question – geography I am just can focus on the one today compounds for simplicity here.

Rick E Winningham

Okay. Within the U.S. obviously we are first year I think based on what we understand today I think its unlikely Novartis gets here with want today LAMA/LABA clearly you got BI who has the potential come here, looks like a couple decent compound I don’t know whether there going to have any issues or not with regard to the device et cetera here so I would say what we are watching that but clearly there way behind us in the U.S.

As you think of Europe it think our expectation its likely that GSK, BI and Novartis are all there again Novartis is there today and we are hopefully going to be there relatively soon with what is going to hopefully be a positive EMA opinion in the very near future and then again I think BI is a little bit kind of there but our expectations – it is more likely and not all three of the companies will be Europe.

Ronny Gal – Sanford Bernstein

Is there any – not expect guide to summit this year. I mean is there anything in the public demand is but data that suggest they will not be able to summit what the need to additional trial.

Rick E Winningham

I am not where of it so I think I where just looking at the historical question have been out there relative to the method FDA. I am not I don’t know whether we will be an issue and some level of question there. So that issued whether or not that issued can percolate around or whether it resolves and I don’t have any particular inside on that.

Ronny Gal - Sanford Bernstein

Okay, thank you very much gentlemen.

Rick E Winningham

Yes, thanks Ronny.

Operator

(Operator Instructions) Our next question comes from the line of Stephen Willey from Stifel.

Stephen D. Willey – Stifel, Nicolaus & Co., Inc.

Hi, guys, thanks for taking the question. Can you just follow up quickly on I think the question Brian asked. So I guess on the absence of a special dividend and assuming that there is some kind of monetization opportunity here, would then you look to take those dollars and I guess try to address some of the terminal value question that we have been getting a lot of and I guess kind of second to that can you begin to address the terminal value with our first addressing because tax optimization part of it and I guess can one come before the other end I guess where is the tax optimization piece of the story in terms of your list of priorities.

Rick E Winningham

Yes, thanks Stephen. There are a lot of rich opportunities in the question there. Going back to JPMorgan earlier this year we laid out three potential things that we felt would be pretty significant opportunities to improve the overall valuation of Theravance royalty management company, following the separation. Number one was to do some financial work and particular look at things like that to equity ratios, the opportunity to pull in future royalties related to some of the respiratory programs or monetization and et cetera. And clearly we’ve done one of those which is recently completed Pharma note.

So that is one area that we think we’ll have significant opportunity going forward particularly the ability to issues straight debt down the road when the financial results would support something like that . that really has the ability to shrink the equity base to level of the company and improve overall returns and so that is sort of one area strategy that is out there.

The second area is to see if there's a way we can reduce the overall tax burden on the company. We are a U.S. Corporation right now and that is something we think about it paramount with the right opportunity to reduce the tax rate or manage our tax rate is better, we would certainly look at that very closely.

The last piece sort of know as number three, which is giving to your question, is related to the tail value of these assets. As everybody knows these are very long lived assets that are at least 15 years of royalties from the date of launch so there is a very long life in front of you. However, 15 years is not infinity as most folks know.

So I think that third opportunity is to improve terminal value and over time if we were able to purchase traditional asset with some portion of the economics coming in here that would have the opportunity to increase the terminal value of the company. The last thing that I will mention is that the terminal value there is a portion of the royalties coming in from the closed triple and MABA and or MABA, FF 15% of all the royalties they come in and get redirected back to our Theravance rather than to Theravance Biopharma.

So again, by definition there is terminal value associated with the overall entity. So we're pretty excited about these opportunities when you look forward, the various levels of ability to influence each of those three. The only thing I would say is we do not have the board here and having approved those three strategies at this point in time but they certainly seem like significant opportunities improve the overall economic picture and overall valuation of the company.

Stephen D. Willey – Stifel, Nicolaus & Co., Inc.

And then, I guess just with respect to options in the tax optimization front, I mean obviously there is kind of a very popular in version transaction at this point, but I guess beyond that it would seemingly be too expensive to try to offshore some of the IP at this point. So I guess in order to would have to come in the form of the transaction is that a safe assumption to make at this point?

Rick E Winningham

I think it’s more likely than not any opportunity there will be a transaction related opportunity as opposed to just an inversion, the facts and circumstances of Theravance today would make it quite difficult, not impossible just to do simple in version so. If there was an opportunity it probably would be again the transaction with the right targets similar to what you've seen in some of the other companies.

Stephen D. Willey – Stifel, Nicolaus & Co., Inc.

Okay, thank you.

Michael W. Aguiar

Great, thanks Steve.

Operator

It appears we have no further questions on the phone. I would now like to turn the conference back to Mr. Winningham. Please go ahead sir.

Rick E Winningham

All right, thank you very much operator and thanks everyone for participating. As I said we are very excited about the next steps in the evolution of each of the two companies. We look forward to bringing forward those next steps to you in future calls and have a great day.

Operator

This does conclude today’s conference call. We thank you for your participation. You may now disconnect.

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