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Loss at THRX Narrower Than Expected

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Theravance Inc.’s third quarter 2012 loss of 37 cents per share was narrower than the Zacks Consensus loss Estimate of 45 cents, but in line with the year-ago loss.

Revenues plummeted 77.8% to $1.4 million in the third quarter of 2012. Revenues missed the Zacks Consensus Estimate of $2 million due to the termination of Theravance’s global deal with Astellas for Vibativ.

Astellas called off its collaboration agreement with Theravance, which was inked in 2005, in January 2012. With Astellas pulling out, supplies in the US have been hit. Theravance was dependent on a single supplier for Vibativ. Unless this issue is resolved, Vibativ supplies will continue to dwindle.

Vibativ is an injectable antibiotic, which is Theravance’s sole marketed product. The drug is used for treating adults suffering from complicated skin and skin structure infections, resulting from susceptible gram-positive bacteria, including both methicillin-resistant and methicillin-susceptible strains of staphylococcus aureus. Theravance is exploring options regarding future Vibativ sales.

Research & development (R&D) expenses were down 29.6% to $27 million in the third quarter of 2012. The decline in R&D expenses was primarily attributable to the completion of the phase IIb study on TD-1211. The study evaluated TD-1211 for the treatment of chronic, non-cancer pain patients with opioid-induced constipation. General & administrative (G&A) expenses for the reported quarter remained flat at $7.8 million.


The company continues to expect adjusted operating expenses to be at the higher end of the range of $120 million to $130 million in 2012. The guidance excludes stock-based compensation.

Neutral on Theravance

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 regarding the challenges currently faced by Theravance relating to Vibativ’s supplies following the termination of the deal with Astellas, we are impressed by Theravance’s pipeline.

In particular, we are positive on Theravance’s collaborations with GlaxoSmithKline (GSK - Free Report) for respiratory candidates, which include FF/VI (proposed brand names: Breo in the US and Relvar in the EU, formerly known as Relovair), LAMA/LABA (UMEC/VI) and MABA (GSK961081). FF/VI, currently under regulatory review for the chronic obstructive pulmonary disease (COPD) indication, will be positioned as a replacement for Glaxo’s Advair on approval.

We are impressed by Theravance’s deal with Merck (MRK - Free Report) , inked in October 2012, for the discovery, development and commercialization of novel small molecule therapeutics for treating hypertension and heart failure. The association with an established pharma player like Merck is a big positive for Theravance.

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