Theravance to Split After Ending Review of AlternativesMichelle Fay Cortez
Theravance Inc., a biotechnology company seeking approval with GlaxoSmithKline Plc of the lung drug Breo, said it will split into two independent publicly traded companies. The shares rose as much as 13 percent.
Royalty Management Co. will manage the joint venture with London-based Glaxo that has several lung disease drugs under review for regulatory approval, South San Francisco, California-based Theravance said in a statement. The other company, Theravance Biopharma, will seek to discover medicines in a variety of disease areas, Theravance said.
Theravance formed a partnership with Glaxo a decade ago to develop respiratory treatments. Glaxo is the largest Theravance stakeholder with 27 percent of the company’s shares as of Feb. 15, according to data compiled by Bloomberg. Ronny Gal, an analyst with Sanford C. Bernstein & Co., is among those who speculated that Glaxo, the U.K’s biggest drugmaker, would take over its California partner. Instead, Theravance decided to split in two.
“Following a review of alternatives to maximize the value of our portfolio, we have decided to separate” the drug discovery operations from the late-stage medicines in development with Glaxo, Chief Executive Officer Rick Winningham said yesterday in the statement. “This separation will provide investors with the opportunity to unlock potential value from two disparate sets of assets, better align employee incentives and provide a consistent return of capital.”
Theravance said it expects the split to be completed by the end of the year or early 2014.
Breo and Anoro, another lung disease drug, may generate annual sales of more than $2 billion and $4 billion, according to Piper Jaffray Cos. Both drugs are once-daily treatments for chronic obstructive pulmonary disease, the third-leading cause of death in the U.S.
Theravance gained 10 percent to $34 at the close in New York. The company increased 60 percent in the past 12 months and had a market value of about $3.3 billion at today’s close.
The split “will create two highly focused businesses with the potential to increase overall shareholder value,” Winningham said in a conference call. Theravance separated its compounds based on their stage of development, with those that have completed the third and final stage of study usually required for regulatory approval going to Royalty Management, he said.
The move isn’t reliant on U.S. Food and Drug Administration approval of Breo or Anoro, Winningham said. The company is moving forward on the assumption that medicines will be approved and Royalty Management will handle revenue distribution, he said. An FDA advisory panel voted April 17 to recommend U.S. approval of Breo.
Theravance Biopharma will continue to invest in research and development and look for partners to help bring new products to market. The company, which will be formed through a dividend issued to current shareholders, may take on a new name and ticker symbol. The company already has several partnerships, including one with Merck & Co. for cardiovascular drugs.
Winningham said experimental lung disease drugs still in development in the new discovery company, if successful, won’t limit those in Royalty Management.
“We are talking about a market that’s currently at $20 billion and growing, unfortunately,” he said. “We see a significant opportunity for all of the products in their portfolio because of the incredible size of the market.”
Bank of America Merrill Lynch and Centerview Partners LLC were Theravance’s financial advisers on the breakup. Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP and Skadden, Arps, Slate, Meagher & Flom LLP were its legal advisers.