Event – Theravance awaits respiratory domino effect

Analysis

Update: The FDA postponed the panel meeting due to bad weather conditions. It will now take place on April 17.

Next month’s US advisory panel on the respiratory combination drug Breo will have important repercussions for a related combo, Anoro, and could determine how long Theravance, the US biotech at the heart of the projects’ development, remains a standalone entity.

Breo and Anoro are important not only to Theravance but to its partner GlaxoSmithKline, which needs to protect a respiratory franchise currently dominated by its blockbuster Advair. But Theravance’s lacklustre valuation suggests that at least one of the newcomers is destined to be delayed. The UK firm, which already owns nearly 27% of Theravance, should weigh up its options carefully.

Company GlaxoSmithKline Theravance
Product Relvar/Breo
Market cap $72.2bn $2.2bn
Product NPV $2.3bn $4.3bn
% of market cap 2% 180%
Event type FDA advisory committee
Date March 7, 2013

Breo, a combination of the established corticosteroid fluticasone with the long-acting beta-agonist (LABA) vilanterol, will be first to test the regulatory waters. A US advisory panel will discuss its approvability for treating chronic obstructive pulmonary disease on March 7, and the FDA action date is set at May 12.

Anoro, meanwhile, is a more novel combination of vilanterol with the long-acting muscarinic antagonist (LAMA) umeclidinium. The US filing for this combo in COPD has a December 18 action date, and analysts also expect an adcom to be convened.

Safety concerns

Timely approval of Breo should augur well for Anoro, given their common LABA constituent, vilanterol, and the fact that there has been concern that the FDA’s stance over the safety of LABAs could curb their use or limit exposure to only the lowest doses.

But the FDA’s concerns might have been overplayed, as shown by the recent overwhelming adcom vote in favour of Boehringer Ingelheim’s LABA olodaterol, which many see as the prelude to a combo with Boehringer’s LAMA tiotropium (Boehringer breathes more easily after Striverdi adcom vote, January 30, 2013). The other important read-across was that the panel seemed happy to overlook the fact that one of four olodaterol studies had failed; Breo’s clinical package also contains a trial that analysts euphemistically call “inconsistent”.

Still, things are not quite so straightforward. Some key opinion leaders have expressed alarm at the link between Breo’s fluticasone component and pneumonia; indeed, pooled 12-month safety data list seven deaths due to pneumonia, although only one of these was seen in the 100/25mcg dose that has been filed for approval.

Poor performance

These doubts no doubt explain the poor performance of Theravance stock, which has lost 30% since its July peak.

But the current level of around $22 a share seems to price in an awful lot of negative Theravance news. Even a six-month delay to Breo approval implies that the stock is around 30% undervalued, analysts at Cowen wrote recently – something borne out by the discrepancy between Theravance’s market cap and the NPV of Breo alone in the table above.

Even if Breo approval is delayed until 2016 uptake could be rapid, though a long delay to both Breo and Anoro represents a worst-case scenario. Consensus in-market sales of Breo stand at $1.5bn in 2018, according to EvaluatePharma, against Anoro’s $725m.

Also of vital importance is the long-standing deal Theravance has with Glaxo. Theravance will owe Glaxo up to $220m if a Glaxo-originated drug like Breo is approved, and it recently raised $250m in debt to cover this liability; but Glaxo also has extensive commitments to its junior partner, and Piper Jaffray analysts put its royalty obligation alone at $500m a year.

Last month they wrote that Theravance could be worth $51 a share to Glaxo, adding that Anoro approval “could lead to an eventual takeout”. But Glaxo is a conservative buyer and will tread cautiously, especially since its current 27% equity stake will act to block other approaches.

Paradoxically, a smooth regulatory pathway for Breo and Anoro might not act as the trigger to pounce at all; rather, it could take one or more delays to make the target’s stock really attractive. Glaxo will be sure to weigh up the opportunity.

To contact the writer of this story email Jacob Plieth in London atjacobp@epvantage.comor follow@JacobEPVantage on Twitter

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