Filing summary
Entity and period: The supplied filing is Theravance, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011—not a filing under the name Innoviva, Inc. The summary below reflects the filing’s stated entity and figures. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and reporting period
Theravance was a biopharmaceutical company developing small-molecule medicines, with major respiratory programs partnered with GlaxoSmithKline (GSK), and a telavancin collaboration with Astellas. Its lead programs included investigational RELOVAIR, LAMA/LABA and MABA respiratory medicines, the oral PµMA candidate TD-1211, and marketed VIBATIV (telavancin), commercialized by Astellas. The filing covers Q2 and the first six months of 2011, compared with the corresponding 2010 periods.
Key financial metrics
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $6.4 | $6.3 | $12.7 | $12.0 |
| Research and development expense | $22.8 | $18.7 | $43.3 | $39.1 |
| General and administrative expense | $7.2 | $7.0 | $14.4 | $13.5 |
| Total operating expenses | $30.0 | $25.7 | $57.7 | $52.5 |
| Operating loss | $(23.7) | $(19.4) | $(45.0) | $(40.5) |
| Net loss | $(25.0) | $(20.8) | $(47.7) | $(43.3) |
| Basic and diluted loss per share | $(0.31) | $(0.28) | $(0.59) | $(0.63) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(43.7) | $(40.9) |
Revenue consisted principally of amortized collaboration fees, Astellas royalties and VIBATIV inventory transfers. Six-month VIBATIV royalties were $1.3 million versus $0.1 million in 2010. The filing does not provide a clear gross-margin measure; product inventory proceeds and related costs were reported within revenue.
At June 30, 2011, cash and cash equivalents were $90.7 million and marketable securities were $193.2 million, totaling $283.9 million, excluding $0.9 million of restricted cash. Total assets were $303.1 million; current liabilities were $35.2 million. Convertible subordinated notes were $172.5 million, bearing 3.0% interest and due January 2015. Stockholders’ net capital deficiency was $37.5 million. Marketable securities had maturities within twelve months and an average duration of about seven months.
For the six months, investing activities used $50.5 million, largely reflecting investment in short-term securities; financing provided $21.4 million, including $10.3 million of net proceeds from GSK share purchases. Cash and cash equivalents fell $72.7 million to $90.7 million, while combined cash, cash equivalents and marketable securities declined $25.7 million from year-end.
Material changes versus the prior comparable period
- Revenue rose 2% in Q2 and 6% for the first half. Management characterized revenue as relatively flat; higher VIBATIV royalties were a contributor.
- R&D expense increased 22% in Q2 and 11% for the first half, primarily due to higher external clinical and nonclinical costs and employee-related expenses. G&A expense increased 3% and 7%, respectively, mainly from employee-related costs.
- Net loss widened by $4.2 million in Q2 and $4.4 million for the first half. Six-month loss per share improved year over year, reflecting a larger weighted-average share count as well as the reported net loss.
- Operating cash use increased $2.8 million year over year. Financing cash inflow was substantially lower than in 2010, when the company completed a public stock offering.
Outlook, commentary, risks and unusual items
- Management expected 2011 R&D expense to exceed 2010, with spending driven by employee costs and development programs. It expected quarterly G&A expense for the remainder of 2011 to be similar to the first-half quarterly level.
- Management believed available cash, cash equivalents and marketable securities would fund anticipated operating needs for at least twelve months under current plans and assumptions. It cautioned that changed plans or assumptions could require earlier additional financing, which might be unavailable or dilutive.
- RELOVAIR’s Phase 3 registrational programs were fully enrolled at approximately 11,000 patients. Two six-month COPD studies supported continuing development; results from ongoing twelve-month exacerbation studies remained important to regulatory submissions. A separate 16,000-patient COPD outcomes study was underway and was not required for initial submissions.
- The seven-study LAMA/LABA Phase 3 program and the MABA Phase 2b program were progressing, according to management. The first patient had been dosed in a TD-1211 Phase 2b study in July 2011.
- Telavancin’s U.S. application for nosocomial pneumonia had received an FDA Complete Response Letter; the company said it did not plan additional studies for that indication but intended to continue discussions with FDA. The European regulator’s committee issued a positive opinion for telavancin in nosocomial pneumonia, with use limited to cases where other treatments were unsuitable; it did not recommend approval for complicated skin and skin-structure infections.
- Astellas’ sole-source telavancin drug-product supplier had received FDA and foreign-regulator observations concerning production and quality systems. The company reported that current U.S. product was not expected to be affected, but future supply and commercialization could be delayed while compliance issues were resolved.
- Potential milestone payments to GSK could total up to $220 million if specified LABA products are successfully launched in multiple regions. The company said a portion could become payable within two years if RELOVAIR Phase 3 results were positive; no related liability was recorded at June 30.
- Special long-term equity and cash incentive awards were contingent on performance targets through 2016. Management determined achievement was not probable at June 30, so no related compensation expense was recognized; the filing describes potentially significant expense if targets are ultimately achieved.
- After quarter-end, GSK affiliates converted all outstanding Class A shares into common shares, leaving no Class A shares outstanding. GSK also agreed on August 2 to buy 102,466 common shares at $19.71 per share.
- Other key risks include clinical-trial failure or delay, regulatory changes affecting LABAs, partner dependence, competition, manufacturing and supply interruptions, uncertain VIBATIV adoption, future capital needs, and GSK’s ownership and governance rights. The company reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer: this source identifies Theravance, Inc., while the request names Innoviva, Inc.
- Track RELOVAIR and LAMA/LABA clinical and regulatory progress, including safety findings and outcomes from ongoing trials.
- Monitor telavancin supplier remediation, European regulatory action and U.S. commercial performance.
- Assess cash burn against the $283.9 million liquid-resource balance, the stated twelve-month funding expectation and the $172.5 million 2015-maturity notes.
- Review the potential $220 million GSK milestone obligation, collaboration terms, GSK ownership rights and post-quarter share transactions.