Theravance, Alfa Wassermann Ink Deal

Theravance Inc. (THRX - Analyst Report) recently announced that it has entered into an agreement with a privately held, Italy based company, Alfa Wassermann S.p.A. for the development and commercialization of velusetrag (TD-5108) in some countries. Velusetrag, an investigational 5-HT4 agonist, is being developed for gastrointestinal motility disorders.

As per the agreement, both the companies will undertake the responsibility of conducting a two-part phase II program. The phase II program will evaluate the efficacy, safety and tolerability of velusetrag in gastroparesis patients. Alfa Wassermann will fund this program.

Alfa Wassermann will have a right to execute an option by paying a fee of $10 million to Theravance, if the data from the phase II program are sufficiently favorable. The option entails exclusive development and commercialization rights of velusetrag in the EU, Russia, China, Mexico and certain other nations. Theravance will retain rights to velusetrag in other countries including the US, Canada and Japan.

If Alfa Wassermann exercises the option, Theravance will be entitled to receive milestone payments of up to $53.5 million on the achievement of certain development, regulatory and sales targets. Theravance will also receive royalties (low teens to 20%) on net sales of velusetrag in Alfa Wassermann regions.

Our Recommendation

Currently, we are Neutral on Theravance. Our long-term stance is in line with the Zacks #3 Rank (short-term Hold rating) carried by the company. Though we are concerned about the challenges currently faced by Theravance relating to Vibativ’s supply following the termination of its collaboration with Astellas, we are impressed by Theravance’s pipeline.

In particular, we are positive on Theravance’s collaborations with GlaxoSmithKline (GSK - Analyst Report) for respiratory candidates, which include FF/VI (proposed brand names: Breo in the US and Relvar in the EU), LAMA/LABA (UMEC/VI) and MABA (GSK961081). FF/VI is currently under regulatory review with a final decision expected by May 12, 2013. It will be positioned as a replacement for Advair on approval. Advair is one of Glaxo’s highest revenue earners with 2011 sales exceeding £5 billion.