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business newsTheravance Poised to Jump
By
Brett Chase
Feb 04, 2011 2:45 pm
Success testing a follow-up drug to blockbuster Advair will be a boon to the company and partner GlaxoSmithKline.
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The drug, Relovair, is being tested as a once-daily treatment for chronic obstructive pulmonary disease and asthma. Glaxo sees it as a successor to Advair, which had more than $8 billion in global sales last year. That makes it one of the world’s top selling drugs. Advair is facing generic competition as its patents begin to expire. So Relovair is a very important product for the British drug maker.
It’s also an essential product in Theravance’s arsenal. The company already has a drug on the market, Vibativ antibiotic, which was developed with Japan’s Astellas. But that product brings in a small amount of revenue (in the third quarter Theravance reported about $400,000 in royalty revenue on $2.3 million in Vibativ sales).
Clearly, the big money potential is in Relovair. Glaxo took a stake in the company and paid for the expensive human studies. Theravance received $60 million in upfront and developmental milestone payments. It can collect almost $500 million if Relovair is approved and hits sales goals. And if the drug is a blockbuster, Theravance gets more. It’s entitled to annual royalties of 15% on the first $3 billion in yearly sales and 5% of all sales above that level, securities filings show.
“Based on partnership economics, even the modest success we assume for Relovair in the $8 billion Advair market would be very valuable to Theravance,” Robert W. Baird analyst Thomas Russo says. He recommends buying the stock and predicts it will rise to $30 a share in the next year. (The stock traded just above $25 Friday afternoon after more than doubling in the past year.)
If approved, the product surely will face future competition from generic versions of Advair. Relovair would have the advantage of once-day-dosing vs twice-daily. That would be a big advantage over a generic rival, Leerink Swann analyst Howard Liang says.
“Medical literature shows that current therapy has poor compliance, and we believe once-daily dosing not only represents a convenience advantage over existing twice-a-day therapy but also could lead to better outcome, at least in COPD (chronic obstructive pulmonary disease),” says Liang, who recommends buying the shares. Liang raised his price target on the stock to $28 from $22 this week.
Glaxo is pouring a lot of money into what’s essentially a line extension of a product. However, Liang notes that other drug makers were able to successfully maintain sales growth of blockbuster drugs by making small improvements to successor products.
Glaxo did it with its depression drug Paxil, later introducing Paxil CR. There was little difference between the drugs, Liang notes.
Other examples: AstraZeneca’s (AZN) heartburn treatments Prilosec and Nexium, Merck’s (MRK) cholesterol drugs Zocor and Vytorin and Forest Laboratories’ (FRX) depression medicines Celexa and Lexapro.
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