For Theravance Investors, GlaxoSmithKline Won't Be The Answer

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For a company that has just experienced the twin disappointments of losing its global commercial partner for its one marketed product and reporting disappointing pivotal data for its biggest pipeline hope, Relovair, Theravance (THRX) remains a company with an impressive valuation in excess of $1 billion. The California group has the security of partnerships with a global major on more than half of its clinical-stage pipeline, an asset many companies in its peer group covet. However, its exposure in risky therapeutic areas ought to cause concern for any investor.

Thus how GlaxoSmithKline handles the completion of the Relovair clinical programme in COPD and asthma and its regulatory submission will play a huge role in the market’s view of Theravance over the coming year. Shares fell 19% to a 16-month low of $16.39 Monday on news of disappointing headline data (Glaxo's Relovair struggles to impress, January 9, 2012). With diminishing hopes for Relovair’s outlook, a pipeline of CNS and respiratory candidates will likely weigh heavily on Theravance’s share price.

Theravance's big score

Theravance needs Relovair, GlaxoSmithKline’s vaunted “son of Advair,” to score big to ensure its future. The two companies confirmed the product is on track for a regulatory filing in mid-2012, which means decisions are likely still at least a year away.

EvaluatePharma’s consensus forecast puts sales at $689 million in 2016, a chunky amount on which Theravance is due to earn 15% royalties until sales reach $3B, when the rate drops to 5%. Given the mixed trial data released Monday regulatory delay seems a strong possibility – such an outcome would be a huge blow.

Analysts from Bernstein estimate 40% of Relovair’s sales could be in asthma; the two companies said yesterday that an asthma submission in the U.S. will not take place until after further discussion with the FDA. The collective picture is of a drug that, whilst perhaps approvable in the long run, will not meet current expectations. As a result, some forecast downgrades can be expected.

Disappointment squared

This came only a couple of days after Astellas handed back the global rights to Vibativ, which is approved in the U.S. in complicated skin and skin structure infections caused by gram-positive bacteria and in hospital-acquired pneumonia in Europe.

Vibativ has been a disappointing product, and it is no surprise to see Astellas (OTCPK:ALPMF) decide to cut its losses. The antibiotic sold $8M in 2010 and with just $11.9M in net sales through three quarters of 2011 appeared likely to fall well short of forecast sales of $39M for the full year. The company must now make some tough choices on whether to seek a new partner or shelve the product.

In its pipeline are two other GlaxoSmithKline-partnered COPD products, a combined long-acting muscarinic agonist and long acting beta agonist called GSK573719/vilanterol, in phase III, and a bifunctional muscarinic antagonist-beta2 agonist called GSK961081, in phase II. It also has its own COPD product, a LAMA called TD-4208.

The remaining pipeline is in CNS in the form of an opioid-induced constipation drug, an ADHD therapy and an Alzheimer’s disease product; a second bacterial infection drug; and two gastrointestinal agents. These remain therapeutic areas in which drug developers have struggled to make headway. But never let it be said that Theravance does not swing for the fences.

The trouble is that for now the GlaxoSmithKline-partnered respiratory line remains its most valuable assets, and with the difficulties faced by Relovair, the read through to the remaining part of the partnership cannot be a positive one. The hopes held by some that GlaxoSmithKline would eventually take out Theravance were helping keep its valuation high; the recent Relovair data has snuffed out most of those hopes.

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