THRX Loss Wider Than Expected

Theravance (THRX - Analyst Report) announced its third quarter results after the closing bell yesterday. The company’s loss per share came in at 35 cents, a penny wider than the Zacks Consensus Estimate. It had earned 34 cents per share in the year-ago period. Revenues were $5.5 million during the quarter, compared with $6 million in prior-year quarter. Theravance receives revenues in the form of milestone payments from its collaborating partners including GlaxoSmithKline (GSK - Analyst Report) and Astellas Pharma.
 
Operating expenses remained unchanged at $26.6 million. While R&D expenses declined 2.6% due to lower costs related to the regulatory process for telavancin (Vibativ), G&A expenses increased 8.7% due to higher employee related costs.

The reported quarter had been quite significant for Theravance with the company receiving US Food and Drug Administration (FDA) approval for its long awaited product Vibativ for the treatment of complicated skin and skin structure infections (cSSSI) caused by Gram-positive bacteria. While the drug will be marketed and sold by Astellas, Theravance will receive royalties on global sales. In the U.S., the company will help Astellas in marketing the drug for the first three years post approval.

Vibativ is expected to be launched in the U.S. by year end. Thus we believe, from 2010 onwards, Theravance’s top line will get a boost from the royalties on sales of the drug.

Apart from cSSSI, Vibativ is also being studied for hospital-acquired pneumonia (HAP). The company has already submitted a New Drug Application (NDA) for this indication and has been assigned a Prescription Drug User Fee Act (PDUFA) date of Nov. 26. We believe a favorable decision from the agency will increase the patient base thereby improving the sales potential of the drug. However, management is not quite optimist about a decision in 2009 and expects it to be extended to 2010.

Another promising pipeline candidate at Theravance is a next-generation combination treatment for patients with chronic obstructive pulmonary disease (COPD). Yesterday itself, the company announced the commencement of the phase III trial of the program, which is being developed under a partnership with GlaxoSmithKline. We have a Neutral rating on the stock.

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