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business newsTheravance Attractive After Novartis' Fumble
By
Brett Chase
Mar 09, 2011 2:00 pm
Novartis' lung drug scored only a partial win which is good news for rival Theravance and partner GlaxoSmithKline.
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Novartis convinced a panel of US government advisers to back its experimental drug for chronic pulmonary disease, or COPD, yesterday. But the panel only approved one of two doses Novartis is trying to sell in the US. The result: A split win for the big drug company, which seeks approval for its inhaled treatment Arcapta Neohaler. The panel makes its recommendation to the Food and Drug Administration, which has final say over what drugs reach market.
That rebuff of Novartis is a positive for Theravance and partner GlaxoSmithKline (GSK), however. Those companies are in a race with Novartis as they work toward getting their own new treatment, Relovair, ready for US approval.
Theravance is co-developing Relovair, a potential successor to Glaxo’s blockbuster Advair, which posted $8 billion in sales last year. COPD treatments are a big market: Potentially $20 billion in total sales, according to one estimate. Pfizer (PFE) sells the COPD treatment Spiriva, a drug with more than $3 billion in annual sales. (See Novartis Faces Lung Drug Questions)
Novartis, which sells its inhaler by a different name outside the US, aims to sell a more effective and convenient treatment for COPD, which is mostly caused by smoking. (The disease takes two forms: chronic bronchitis and emphysema.) But the company was hoping for approval of two dosing levels for its inhaler. The panel wasn’t convinced that the Novartis product was any more effective at the higher dose.
Theravance and Glaxo can move ahead with their experimental product while Novartis revisits its options on dosing, Robert W. Baird analyst Thomas Russo says.
Russo recommends buying Theravance and he sets a 12-month price target of $30 a share. Theravance will have to share sales with Glaxo but Relovair is potentially a big enough drug that it should be a meaningful amount of revenue, the analyst says.
“Even the modest success we assume for Relovair in the $8 billion Advair market would be very valuable to Theravance,” Russo says.
Shares of Theravance fell 1% to $22.56 in midday trading Wednesday. The shares are down 10% this year but up 77% over the past 12 months. Novartis’ US shares fell 1% to $55.03, while Glaxo’s American stock rose 1% to $38.64.
Glaxo paid Theravance $46 million in upfront and milestone payments related to a drug partnership for COPD and other treatments through the end of last year. Since 2004, UK-based Glaxo also paid $245 million to purchase shares of Theravance in separate transactions. As of last month, Glaxo held a little more than 18% of Theravance’s shares, securities filings show.
“We continue to believe Theravance is well positioned to benefit from (Glaxo’s) heavy investment in these programs,” Leerink Swann analyst Howard Liang says in a recent note. He rates the shares a buy, also with a $30 price target.
No positions in stocks mentioned.
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