Business context and reporting period
The supplied filing is Theravance, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015. The filing describes a royalty-management business focused on respiratory products partnered with GlaxoSmithKline (GSK), principally RELVAR/BREO ELLIPTA and ANORO ELLIPTA, following the June 2014 spin-off of its research and drug-development operations. The filing names Theravance, Inc. as registrant; verify its mapping to Innoviva.
Financial performance and position
Unless otherwise stated, amounts are in millions of U.S. dollars. The income statement compares Q1 2015 with Q1 2014; balance-sheet amounts compare March 31, 2015 with December 31, 2014.
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Total net revenue | $6.9 | $(0.8) in Q1 2014 |
| Operating income (loss) | $0.7 | $(14.7) in Q1 2014 |
| Net loss | $(10.7); $(0.09) per share | $(67.7); $(0.62) per share in Q1 2014 |
| Net cash from (used in) operations | $(1.6) | $(50.6) in Q1 2014 |
| Cash, cash equivalents and marketable securities | $255.1 | $283.4 at December 31, 2014 |
| Total assets | $488.7 | $521.7 at December 31, 2014 |
| Current assets / current liabilities | $262.4 / $11.0 | $252.2 / $13.8 at December 31, 2014 |
| Long-term debt carrying amount | $732.1 | $725.6 at December 31, 2014 |
GSK royalty revenue was $10.1 million before $3.5 million of amortization of fees paid to GSK, resulting in $6.7 million of reported royalty revenue. GSK’s Q1 product sales were $59.9 million for RELVAR/BREO and $17.7 million for ANORO; these are partner sales, not Theravance revenue. No operating margin percentage is stated in the filing.
Investing activities provided $73.7 million, mainly from marketable-security sales and maturities. Financing activities used $27.7 million, chiefly the $28.8 million dividend payment, partly offset by $1.1 million of stock-issuance proceeds. The $255.1 million liquidity balance declined $28.3 million from year-end.
Material changes versus the prior comparable period
- Revenue improved by $7.7 million, primarily because the partnered products were at earlier launch stages in Q1 2014; reported Q1 2014 royalty revenue was negative after amortization.
- Continuing-operations net loss narrowed by $5.5 million, as higher royalties and lower post-spin-off employee-related costs more than offset sharply higher interest expense.
- Research and development expense fell 74% to $0.7 million; general and administrative expense fell 52% to $5.4 million.
- Interest expense rose to $12.7 million from $1.6 million, mainly following the 2029 notes issuance in April 2014. The 2015 loss excludes discontinued operations; Q1 2014 included a $51.5 million discontinued-operations loss.
Outlook, risks and unusual items
- Management expected cash, cash equivalents and marketable securities, together with expected royalties net of expenses and debt service, to fund operations for at least twelve months. It expected 2015 R&D and G&A expenses to decrease following the spin-off. No numerical revenue or earnings guidance was provided.
- The Board declared a subsequent quarterly dividend of $0.25 per share, payable June 30, 2015. Management cautioned that future capital returns are discretionary and could be reduced or suspended.
- Management reported that sales of BREO and ANORO through March 31 were significantly below its expectations. Royalty receipts depend on GSK’s commercialization, pricing, market access, competition, regulatory outcomes and product safety. The SUMMIT mortality study readout was expected in 2015.
- The 2029 non-recourse notes carry a 9% fixed rate and are secured by 40% of specified GSK royalties. $6.4 million of Q1 interest was added to principal; the notes’ carrying amount was $477.0 million. The 2023 convertible notes had a $255.1 million carrying amount and bear 2.125% interest.
- The company reported a $1.2 million realized gain on sale of its remaining Theravance Biopharma shares. It also disclosed a lease guarantee relating to facilities assigned to Theravance Biopharma: approximately $32 million of remaining lease payments through May 2020, with a $1.3 million recorded liability.
- Disclosure controls were assessed as effective at a reasonable-assurance level. A new financial-reporting system was implemented January 1, 2015, reducing reliance on Theravance Biopharma for that function.
Important facts for investors to verify
- Confirm the filing’s named registrant, Theravance, Inc., is the intended issuer for the Innoviva request.
- Check subsequent GSK sales, market access and royalty trends, and the reported outcome of the SUMMIT study.
- Review debt-service terms and the effect of allocating 40% of specified royalties to the 2029 notes, including the interest added to principal.
- Assess whether cash resources and future royalties support planned dividends after operating expenses and debt service.
- Review the lease-guarantee exposure and the company’s dependence on GSK and a small, outsourced operating structure.