Theravance Signs Collaboration Agreement with Merck for Cardiovascular Disease Treatment (THRX)

Biopharmaceutical company Theravance (NASDAQ: THRX) announced that it has signed a collaboration agreement with Merck for the treatment of hypertension and heart failure. As per the agreement, Theravance will receive a $5 million upfront payment, funding for research and royalties on worldwide net sales of any products arising from the collaboration. Theravance will also be eligible for milestone payments totaling up to $148 million for the first indication. In return, Merck will receive a worldwide, exclusive license to Theravance’s therapeutic candidates.

The California-based Theravance is engaged in the discovery, development and commercialization of small molecule medicines primarily for therapeutic areas of respiratory diseases and bacterial infections. The company had a bad start to the year when pneumonia-related deaths were reported in patients taking the company’s experimental lung drug Relovair. GlaxoSmithKline (NYSE: GSK) is Theravance’s Relovair development partner. Theravance fell 33% to $16.54 on January 10, 2012. The share price, which recovered to around $19.00, was beaten again by the end of January following a negative rating with a target of $12.00 from Morgan Stanley.

With a wider loss reported in the fourth quarter of fiscal 2011, Theravance continued to trade at around $18.00 level for the next two months. On March 29, 2012, Theravance, in its top-line data reported from Phase III studies for Relovair, stated that it met the primary end point in the first study and statistically insignificant improvements in the second. Two days later, GlaxoSmithKline increased its stake in Theravance to 26.8% from 18.3% by acquiring 10 million shares for about $212.9 million. The announcement boosted the share price to $23.29.

Theravance traded in the range of $20.00 to $22.00 until the end of May 2012, owing to an upgrade by “The Street”, a successful completion of GlaxoSmithKline’s share purchase and a 5-year agreement with Hospira Worldwide to purchase more than a majority of its VIBATIV 750 mg dosage. A Seeking Alpha report published on June 3, 2012, listed Theravance as an “outperformer” on insider purchases.

On July 2, 2012, Theravance and GlaxoSmithKline announced positive results from four Phase III tests of a treatment for chronic obstructive pulmonary disease. The rally that followed the news took the share price to $31.69 in two weeks’ time. The dismal second quarter 2012 performance reported on July 31, 2012, and a stock downgrade by “The Street” from “hold” to “sell” resulted in an erosion of the stock price to $26.00 by the second week of August.

On September 26, 2012, the company announced that the FDA had accepted the New Drug Application (NDA) for its drug candidate FF/VI. The proposed brand name was Breo in the US and Relvar in the EU (formerly known as Relovair).

A week later, on October 2, Theravance entered into an agreement with Alfa Wassermann to develop and commercialize Velusetrag for Gastroparesis.

Commenting on today’s agreement with Merck, Mathai Mammen, Senior Vice President of Research and Early Clinical Development at Theravance stated, “Over the last several years, Theravance has gained significant insights into the design of novel molecules directed towards certain cardiovascular targets. We are pleased to be working with Merck, an industry leader in the development of innovative cardiovascular medicines, to bring new therapies to patients.”

Theravance ended the day at $26.57 per share, up $1.07 or 4.2% on a volume of 304,437 shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.