GSK Boosts Theravance, Near-Term

We expect the U.S. launch of Theravance, Inc.’s (THRX - Analyst Report) Telavancin, for the treatment of complicated skin infections, to occur by August, provided the company satisfactorily deals with the manufacturing issues and site monitoring and conduct concerns raised by the U.S. Food and Drug Administration. However, given the stiff competition in the complicated skin and skin structure infections and the hospital-acquired pneumonia markets, we expect only $185 million in Telavancin sales in 2011.

The company’s new financial restructuring program will result in annual cost savings of $17 million. However, we are more excited about the company’s Beyond Advair collaboration with GlaxoSmithKline (GSK - Analyst Report). The deal holds significant value for the company and could eventually drive the company to profitability.

Theravance has a deep pipeline of exciting, late-stage compounds. However, approval of one or more of the compounds under the collaboration is not expected before 2011. Hence, we maintain our Hold rating on Theravance. We arrive at our target price of $15 by applying a P/S multiple of 15.4x to our 2011 revenue figure of $105.2 million, discounted at 20 percent for 3 years.

Varun Parwal contributed to this report.

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