UPDATED: Theravance to split into two biotech groups as GSK drugs progress

Theravance ($THRX) plans to break up into two publicly traded companies, a move that comes as two of the biotech outfit's respiratory drugs partnered with GlaxoSmithKline are under review with regulators for potential approvals this year.

The South San Francisco-based biotech announced Thursday afternoon that the separation would result in one company dubbed Royalty Management. That company will take over Theravance's late-stage respiratory drugs partnered with GlaxoSmithKline ($GSK) and potential royalty revenues from the breathing-disorder meds Breo/Relvar, which FDA advisers endorsed for approval in COPD this month, as well as Anoro and vilanterol (VI) monotherapy.

Theravance Biopharma, the other company, would hang onto the company's approved antibiotic called Vibativ and focus on R&D of small molecules from its multivalent discovery platform. The group would hang onto a 98% interest in MABA, MABA/ICS and UMEC/VI/FF drug programs that are partnered with GSK. The development group would also continue working on Theravance's existing collaborations with Merck ($MRK) in cardiovascular diseases as well as Alfa Wassermann, Clinigen and R-Pharm.

Prior to today's announcement, GSK reportedly owned a 27% stake in Theravance and was rumored to be a potential suitor to acquire the company. Theravance expects to complete the separation into two companies by late-2013 or early in 2014.

The Royalty entity gives shareholders the chance to cash in on the value of the most advanced respiratory drugs in the GSK collaboration, according to Theravance. Under Theravance's collaboration with London-based GSK, the South San Francisco-based company is owed a 15% royalty on the first $3 billion in annual sales of Breo, which Glaxo plans to sell in Europe as Relvar. The FDA has a May 12 action date for its decision on approval of Breo, which analysts predict could bring more than $1 billion in sales by 2018.

"We believe 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 to stockholders of Royalty Management Company," Theravance CEO Rick Winningham said in a statement.

Royalty Management, which is expected to change its name at a later time, will take on Theravance's convertible notes and milestone payments owed to GSK based on approvals of Breo/Relvar and Anoro, for which GSK has filed for approvals in the U.S., European Union and Japan. The Royalty group would also keep Theravance's operating loss "carryforwards," which can be used to reduce tax burdens on future profits.

Winningham said on a conference call that the Royalty Management group would operate with minimal staffing because GSK funds and manages development of the late-stage respiratory drugs. He expects most of Theravance's employees to join Theravance Biopharma, which may change its name at a later time. The CEO has said repeatedly that 2013 would be a transformational year for his company.

- here's the release
- check out Bloomberg's article

Editor's note: Updated with comments from Winningham and details about the proposed corporate split.

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