Yesterday, Theravance (THRX) released its Q2 earnings update. Being still in the early days of its operations, the income statement was of less importance compared to the balance sheet, which was the first without Biopharma (NASDAQ:TBPH). Theravance has $369 million of cash, which cover its announced dividend for about 3 years. The most important announcement was related to increased patient access to the recently launched GlaxoSmithKline (NYSE:GSK) drugs:
At CVS BREO was removed from the CVS Caremark formulary exclusion list and will be available at Tier 3 without restriction effective January 1, 2015. Express Scripts, BREO will move from Tier 3 to preferred Tier 2 unrestricted position in the Basic Formulary starting in 2015, but unfortunately has not been included in the National Preferred Formulary. These recent wins represent significant increase in total patients covered for BREO. [...] At CVS Caremark, ANORO will move from its current Tier 3 non-preferred position to a preferred Tier 2 unrestricted position effective October 1, 2014. At Express Scripts, ANORO will move from its current Tier 3 non-preferred position to a preferred Tier 2 unrestricted position on the National Preferred Formulary and the Basic Formulary effective August 1, 2014. [...] With regard to the difference between Tier 3 and Tier 2, there are a number of pieces I think the biggest one out there is co-pays. Generally, Tier 2 is at a lower level of co-pays than in Tier 3. I don't know that I have any specific guidance around the percentage of patients on each one of those. I think in general when we look at this and we don't have very specific numbers for the number of lives that are covered by these accounts. We believe in the neighborhood of 20 million or so patients is on the Express Scripts' Basic Formulary and we believe in the neighborhood of 25 million or so patients is on National Formulary, so both of these pieces are very significant here. [...] I think overall the number of lives that we've picked up in the two leading PBMs over the last couple of weeks is going to be very meaningful for the business. (Source: Conference call transcript)
Investors should remember that Breo was launched several months before Anoro, and management notes that GSK is slightly ahead with Anoro of where it was with Breo at a similar point in the launch in terms of uptake and reimbursement. Furthermore, the company counteracted the recently emerged doubts about the safety of its dividend, and sounded highly confident. This indirectly indicates that management believes in significant royalty income above $100 million per year at the latest 3 years from now, as otherwise, its cash reserve would be gone. $100 million of royalty income correspond to at least $1 billion of GSK sales, and are far less than consensus forecasts. Management also noted that due to heavy sampling, the number of patients that are on the new medicines was "certainly higher" than the number analysts were seeing. Hence, I stay by my opinion on the Anoro+Breo sales trajectory, as recently published. Drugs will probably pick up sales at a slower pace than expected, but accelerate significantly later on.
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