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Theravance to Offer Notes

Zacks Equity Research

Theravance, Inc. (THRX) announced recently that it intends to offer $250 million convertible subordinated notes, due in 2023. Theravance stated further that the notes will be convertible into shares at the option of the holders at any time on or prior to the second business day before the date of maturity. The company also expects to provide the underwriters with an over-allotment option for an additional $37.5 million of notes.

The biopharmaceutical company intends to utilize the net proceeds from the offering to make milestone payments to GlaxoSmithKline (GSK) in the event of any of its pipeline candidates, being developed in collaboration with the latter, gaining approval. Theravance also intends to use the net proceeds to reduce its debt levels apart from other general corporate purposes.

We are positive on Theravance’s pipeline programs in collaboration with Glaxo. Earlier in the month, the companies announced the submission of a marketing application to the European Medicines Agency (:EMA) for their pipeline candidate UMEC/VI (proposed trade name: Anoro). The companies are looking to get the candidate approved in the EU as a maintenance bronchodilator therapy (once daily) to relieve symptoms in adults suffering from chronic obstructive pulmonary disease (:COPD).

Glaxo/Theravance are also seeking US approval of the candidate for the COPD indication. UMEC/VI is a combination of a long-acting muscarinic antagonist/LAMA (GSK573719 or umeclidinium bromide/UMEC) and a long-acting beta2 agonist/LABA (vilanterol/VI). We note that Glaxo along with Theravance is also developing other COPD candidates including Breo (proposed brand name Relvar in the EU, formerly known as Relovair) and MABA (GSK961081).

We currently have a Neutral recommendation on Theravance, which carries a Zacks Rank #3 (Hold). We have a similar stance on Glaxo.

Large-cap pharma companies that currently look better-positioned include Sanofi (SNY) and Novartis (NVS). Both the companies carry a Zacks Rank #2 (Buy).

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