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Loss at Theravance Narrower Than Expected

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Theravance, Inc.’s third quarter 2013 loss of 44 cents per share was narrower than the Zacks Consensus Estimate of a loss of 79 cents per share. The third quarter 2013 figure was wider the year-ago loss of 37 cents per share. The wider year-over-year loss was due to lower revenues and higher costs.

Revenues in the third quarter of 2013 declined to $0.4 million from $1.4 million a year ago. Revenues in the third quarter of 2013 were short of the Zacks Consensus Estimate of $2 million.

Research & development (R&D) expenses were up 23.7% to $33.4 million in the third quarter of 2013. The increase in R&D expenses was primarily attributable to the company’s efforts to develop its pipeline. General & administrative (G&A) expenses for the reported quarter climbed 57.7% to $12.3 million primarily due to higher legal and accounting costs incurred by the company pertaining to its plan to split into 2 entities. Theravance now expects 2013 operating expenses (excluding special items) at the upper end of its previously guided range of $125-$135 million.

Theravance is working on completing its proposed separation into 2 separate entities. The process is expected to be completed by year end/early 2014.

We remind investors that in Apr 2013, the board of directors at Theravance approved its decision to split into two separate publicly traded companies. While one company will manage the late-stage partnered respiratory candidates and associated potential royalty revenues, the other will focus on the discovery, development and commercialization of small-molecule therapies targeted towards areas of high unmet medical need.

The company responsible for the development of respiratory candidates will be named Royalty Management Company. The entity dealing with small-molecule therapies will be named Theravance Biopharma.

In May 2013, Theravance received a boost when the U.S. Food and Drug Administration (FDA) approved the chronic obstructive pulmonary disease (COPD) candidate, Breo Ellipta. Theravance has co-developed the drug with GlaxoSmithKline (GSK - Free Report) .

The FDA cleared Breo Ellipta as a long-term maintenance therapy of airflow obstruction and for bringing down exacerbations in patients suffering from COPD. Theravance announced in its press release that Glaxo has commenced shipping the drug into the U.S.

Moreover, in Sep 2013 the drug was cleared in Japan for treating patients suffering from bronchial asthma. We note that the approval triggered a $10 million milestone payment from Theravance to GlaxoSmithKline. The drug is expected to be launched in Japan for the approved indication by Dec 31, 2013.

In the same month, the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) issued a favorable opinion on Relvar Ellipta’s approval in the EU for the asthma and COPD indications. A final decision from the European Commission is expected by year end.

We note that Glaxo and Theravance are also looking to get another COPD candidate approved. In Feb 2013, the FDA accepted the regulatory application of Glaxo/Theravance’s UMEC/VI (proposed trade name: Anoro Ellipta). The companies are looking to get the candidate approved in the U.S. as a once daily therapy for treating patients suffering from COPD. We note that an advisory panel of the FDA recommended the approval of Anoro Ellipta in the COPD indication in Sep 2013. A final decision from the U.S. regulatory body is expected by Dec 18, 2013.

Theravance currently carries a Zacks Rank #3 (Hold). Companies like Actelion Ltd. and Isis Pharmaceuticals, Inc. are well placed, each with a Zacks Rank #1 (Strong Buy).

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