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Theravance bets it can innovate without GlaxoSmithKline as spinoff nears

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Theravance ($THRX), the biotech engine behind GlaxoSmithKline's ($GSK) bright future in COPD, is gearing up to split in two next quarter, with one publicly traded company handling its revenue-generating drugs and the other leading the charge on R&D.

Once the deal is done, Theravance, Inc., will beget Theravance Biopharma, retaining the full rights to the GSK-partnered Relvar and Breo and Anoro Ellipta--drugs with combined peak sales estimates north of $3.5 billion--but handing over 85% of eventual proceeds from three pipeline treatments to its newfangled spinout. Last year, when Theravance first disclosed its mitosis scheme, the plan was to give its spinout a 98% stake, but after Elan nixed a bid to buy a $1 billion share of the royalties, the biotech reworked its deal in favor of the parent company.

And thus will begin the life of Theravance Biopharma, which plans to launch with $300 million, one approved product and a GSK-free pipeline of small-molecule candidates. Beyond Vibativ, an FDA-approved injectable antibiotic, the biotech has three Phase II prospects: TD-4208 for COPD; TD-1211, designed to counteract the gastrointestinal side effects of opioid therapy; and TD-9855, a norepinephrine and serotonin reuptake inhibitor with hopes of treating chronic pain.

But despite the regulatory success for its partnered COPD drugs, Theravance's recent past is not without its checkers. Beyond the setback with Elan, TD-9855 failed a Phase II study in ADHD, leading the company to scrap that program in November, and Merck ($MRK) terminated a discovery deal worth up to $153 million the following month. That said, with an 85% stake in Theravance's trio of GSK-partnered COPD treatments--MABA, MABA/ICS and UMEC/VI/FF--a best-case scenario could bring in billions and bankroll the spinoff's R&D efforts.

Splits, spinoffs and segment sales have become all the rage in Big Pharma, as investors cheer on the efforts of Pfizer ($PFE), Abbott Laboratories ($ABT) and Johnson & Johnson ($JNJ), but Theravance's move would make it something of a trailblazer in the biotech world, where few companies are diversified enough to carve up their businesses. Of course, not many have the kind of revenue stream Theravance is promised through its GSK partnership, and CEO Rick Winningham said that puts his company in an enviable position.

"We continue to believe this separation will provide investors with the opportunity to unlock potential value from two different sets of assets, better align employee incentives and provide the opportunity for significant capital returns," Winningham said in a statement.

- read the statement

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