Business context and reporting period
The supplied filing is Theravance, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The request metadata names Innoviva, Inc.; the filing itself identifies the registrant as Theravance, Inc., so investors should verify the entity and filing being reviewed. Theravance was a biopharmaceutical company with partnered respiratory programs and internally developed drug candidates.
Unless otherwise noted, financial amounts below are in U.S. dollars, millions. Interim results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Three months ended June 30, 2013 | Six months ended June 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $1.327 | $2.671 | $1.430 and $128.529, respectively |
| Research and development expense | $31.739 | $58.155 | $29.549 and $62.751 |
| General and administrative expense | $11.374 | $19.689 | $7.590 and $15.447 |
| Operating loss (income) | $(41.786) | $(75.173) | $(35.709) and $50.331 |
| Net loss (income) | $(36.429) | $(73.789) | $(37.120) and $47.474 |
| Basic and diluted EPS | $(0.37) | $(0.76) | $(0.42) and $0.55 basic; $(0.42) and $0.53 diluted |
- Second-quarter revenue fell 7%; first-half revenue fell 98%. The 2012 first-half comparison included $125.7 million of deferred Astellas revenue recognized when that collaboration terminated.
- Second-quarter R&D expense rose 7%, driven mainly by external study costs; first-half R&D fell 7%, reflecting completion of TD-1211 studies and increased partner reimbursements. G&A increased 50% in Q2 and 28% in the first half, largely due to strategic-initiative legal and accounting costs and VIBATIV commercialization work.
- Q2 other income, net, was $8.2 million, primarily reflecting a $10.0 million Elan termination fee, partly offset by related third-party costs. First-half interest expense was $5.8 million, up from $3.0 million, primarily due to the 2023 notes.
- At June 30, cash and cash equivalents were $199.2 million; short-term investments were $243.8 million and long-term marketable securities were $90.3 million. Management reported total cash, cash equivalents and marketable securities of $533.3 million, excluding $0.8 million restricted cash.
- Total assets were $594.7 million, total stockholders’ equity $85.6 million, and accumulated deficit $1.408 billion. Convertible subordinated notes were $460.0 million at carrying value, including $172.5 million due 2015 and $287.5 million due 2023.
- First-half operating cash use was $48.3 million; investing cash use was $118.5 million, including the $30.0 million GSK milestone payment and purchases of investments; financing provided $271.3 million. Cash and cash equivalents increased by $104.4 million to $199.2 million.
- No gross profit or conventional operating-margin measure is presented; the filing reports operating expenses and operating losses, consistent with its collaboration-driven revenue model.
Material changes and unusual items
- FDA approved BREO ELLIPTA for COPD in May 2013. Theravance paid GSK a $30.0 million registration milestone, capitalized as a finite-lived intangible asset amortized over an estimated 15 years. GSK was expected to make the product available in the U.S. in Q3 or Q4 2013.
- VIBATIV received FDA approval for hospital-acquired and ventilator-associated bacterial pneumonia in June 2013. Theravance planned a U.S. relaunch and continued evaluating U.S. commercialization alternatives. It also entered regional commercialization agreements for VIBATIV with Clinigen and Hikma.
- In January 2013, Theravance issued $287.5 million of 2.125% convertible notes due 2023 and paid $36.8 million for capped-call options. In June it called its 3% notes due 2015; all $172.5 million principal was converted to 6.67 million shares by July 3, 2013, rather than redeemed for cash.
- GSK purchased approximately $9.3 million of shares during the first half under its top-up rights. A further purchase of approximately $111.9 million was agreed on July 30, 2013, for expected closing August 2.
- The board planned to separate the business into two public companies. Theravance expected to fund the new company with approximately $300 million at separation; the financial statements did not reflect separation adjustments.
Outlook, risks and contingencies
- Management expected 2013 operating expenses to exceed 2012’s $148.8 million and believed existing cash and investments would cover anticipated operating needs for at least 12 months under current plans.
- Potential GSK milestone obligations under the LABA collaboration could total up to $190 million, with up to $110 million potentially payable in the remainder of 2013 and all milestones potentially payable by the end of 2014. These amounts were contingent and no related liability was recorded at June 30.
- Risks include regulatory and commercial execution for BREO and investigational ANORO; the ANORO FDA advisory committee meeting and December 2013 action date; delayed MABA monotherapy development; clinical, manufacturing and product-acceptance risks for VIBATIV; and dependence on partners and single-source suppliers.
- The planned separation required regulatory filings, third-party consents and other work, could incur significant professional fees, and might not be tax-free or completed as planned. Management anticipated up to $7.6 million of performance-award stock compensation and $9.5 million of cash bonus expense in 2013 if specified performance conditions were achieved; those conditions were not considered probable at quarter-end.
- Management reported effective disclosure controls at June 30 and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the registrant identity: the supplied filing names Theravance, Inc., while the request metadata names Innoviva, Inc.
- Track the separation’s completion, funding allocation, tax treatment and effect on the businesses’ financial statements.
- Check actual BREO launch and sales, ANORO regulatory outcomes, and subsequent GSK milestone payments against the stated estimates.
- Verify the post-quarter conversion of the 2015 notes and closing of the $111.9 million GSK share purchase.
- Assess cash burn and commercialization costs, including VIBATIV relaunch plans, against management’s liquidity outlook.