UPDATE: Morgan Stanley Reiterates On Theravance As Slow Trends Weigh On Value

Dwight Einhorn
July 21, 2014

In a report published Monday, Morgan Stanley analyst David Friedman reiterated an Underweight rating on Theravance (NASDAQ: THRX), but lowered the price target from $12.00 to $7.00.

In the report, Morgan Stanley noted, “In light of the THRX/TBPH split, we are updating our model for Royalty Co. (we do not cover TBPH). We still believe that the farther we are into the ramp of Breo (36 wks on mkt in US) and Anoro (12 wks on mkt in US), the more likely the stock will reflect a) our below consensus estimates, which line up well with current trends, b) a long-term inability to fund the current dividend, and c) the lack of room for add'l financial steps such as more leverage or acquiring a terminal value. To this last point, we note that a de minimus triple combo royalty to THRX (0.95% of sales to start, not currently modeled based on drug risk) is unlikely to serve as a meaningful source of terminal value.”

Theravance closed on Friday at $27.97.

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