Theravance Biopharma


Theravance Biopharma is a US-listed biopharmaceutical company which is focused on developing potential best-in-class treatments for patients with a range of serious illnesses. The company is starting to benefit from an attractive royalty stream from Trelegy Ellipta, will soon see revenues from its profit share arrangement on Yupelri, and has a diversified development pipeline with considerable long-term potential across a wide range of conditions. Its management team is experienced in developing and commercialising treatments in a range of medical fields, with localised delivery for localised disease a key area of developmental focus.

The company was spun out of Theravance (now known as Innoviva) in 2014. We have been invested in the business since August 2015.

Investment case summary

The investment case for Theravance Biopharma is based primarily around an exciting and diverse pipeline of potential treatments currently in development. The business also benefits from the prospect of a growing royalty stream from its economic interest in Trelegy Ellipta, a GlaxoSmithKline and Innoviva product that was recently approved for use in patients suffering from chronic obstructive pulmonary disease (COPD). This asset has additional potential in asthma, with Phase III trial completion anticipated towards the end of this year.

In the gastrointestinal field, the company is developing a number of potential treatments for conditions such as ulcerative colitis and Crohn’s disease. In particular, its JAK-inhibitor program (TD-1473) looks very interesting – the company recently announced a lucrative global collaboration with Janssen on this asset. Meanwhile, in cardiovascular, the company is investigating TD-9855 as a potential treatment for neurogenic orthostatic hypotension (nOH) and, in respiratory, Yupelri (formerly known as revefenacin), which has been developed in partnership with Mylan, received approval for use in COPD patients in the US in November 2018.

Many of the programs in Theravance Biopharma’s pipeline are potential game-changers in their fields but its current market cap could be justified purely by the future revenue stream from Trelegy Ellipta. In our view, therefore, Theravance Biopharma’s share price continues to materially underappreciate the company’s considerable long-term potential. Following a non-dilutive debt financing in December 2018, the company is fully-funded to deliver its key value inflection points.

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Fund exposure
Income Focus Fund 2.27%
Equity Income Fund 4.34%

As at 31 March 2019

Geography United States
Industry Health Care
Themes Healthcare innovation

Source: Woodford

Share price


Debt financing

Earlier this week, Theravance Biopharma announced a $250m debt financing to help fund the development of its pipeline. This has come in the form of a private placement of 9% fixed rate notes due April 2033, which are secured by future payments expected from its Trelegy Ellipta royalties. Theravance retains its full long-term economic interest in Trelegy Ellipta but while the notes are outstanding, three-quarters of the royalty cash flow will go towards satisfying the debt obligations, with the remainder retained by the company.

The potential for monetising the Trelegy royalty stream had been relatively well flagged but it is good to see it executed in a way that retains the long-term economic interest in the asset, given its value proposition and strong initial commercial performance. This debt financing fully funds the business to its key value inflection points, removing an important headwind for the business.

Lucinda Crabtree
7 December 2018

Yupelri approval

Theravance Biopharma and Mylan have now received US FDA approval for Yupelri for maintenance treatment of COPD patients in the US. Yupelri is a long-acting muscarinic antagonist (LAMA) – in other words, it is a muscle relaxant. Clinical data leading up to the approval has been good and it also has a clean side-effect profile. Whereas most COPD patients receive treatment with conventional dry powder or pressured metered inhalers, this is the first and only once-daily, ‘nebulized’ bronchodilator approved for COPD in the US.

We expect a quick US launch, with both partners indicating Yupelri will be available for US patients before year end. COPD is the third leading cause of death and the fourth leading cause of hospital re-admissions in the US, affecting approximately 16m Americans. Consensus currently believes that this product could deliver peak sales of $550-750m over time but we believe this analysis may underestimate the size of the market opportunity. Nevertheless, under the terms of the collaboration with Mylan, this level of product sales would deliver c. $150m per annum to Theravance, most of which will fall directly to the bottom line.

Next year is shaping up to be a very exciting year for Theravance, given Trelegy royalties starting to ramp up (pure cash flow), the commencement of Yupelri sales and Phase III study starts across the pipeline.

Lucinda Crabtree
12 November 2018

Positive deal, encouraging results

There were two announcements from Theravance Biopharma yesterday.

First, it is selling its proprietary antibiotic, Vibativ, to speciality pharma business, Cumberland Pharmaceuticals. Cumberland will pay Theravance $25m and tiered royalties of up to 20% on future US net product sales. This looks like a sensible deal to us – although Vibativ is delivering a growing revenue stream, it has become an increasingly marginal aspect of the investment thesis and a distraction from management’s core areas of focus.

Second, Theravance Biopharma announced its third quarter results, which provided an opportunity to emphasise its focus on strategic priorities, that place the company in an optimal position as it approaches 2019. There were no new data disclosures in the release, but encouraging progress is evident as the mid and early stage assets continue through their drug development processes. We now await the FDA’s approval decision on Yupelri (the new trademark for revefenacin), which is due next week.

Theravance also pointed to the rapid uptake in prescriptions for GlaxoSmithKline’s Trelegy Ellipta in chronic obstructive pulmonary disorder (COPD), which remain strong. Glaxo generated net sales of c. $56M in the third quarter, which will translate to c. $3-4m in royalties for Theravance (likely with a quarter’s lag).

With so many future growth drivers at its disposals, the upside is significant and we’re very confident in the long-term opportunity. At $1.3bn, the current market cap could be justified purely by the future revenues from Trelegy, which come through a 5.5-8.5% royalty on a potentially $2bn+ sales opportunity. Yupelri, if approved, could also deliver a very attractive revenue stream through the profit share arrangement with its partner, Mylan. You can therefore argue that, at the current share price, you’re get an attractive and diverse pipeline for nothing.

Lucinda Crabtree
7 November 2018

Positive trial results

The company reported today positive results from a phase II clinical trial for its TD-9855 asset – this is an investigational, once-a-day treatment that is being developed for patients with symptomatic neurogenic orthostatic hypotension (nOH). This rare disorder manifests as a sustained drop in blood pressure when adopting an upright position and is predominantly a result of underlying neuronal malfunctions associated with diseases like Parkinson’s. nOH causes dizziness and light-headedness as the body doesn’t adjust its blood pressure appropriately when standing up. To all intents and purposes blood starts to pool in the lower extremities and the brain is not adequately supplied.

Top-line data from the study evidenced that the treatment has produced durable improvements in patients’ symptom severity after four weeks of treatment. This was assessed by the Orthostatic Hypotension Symptom Assessment Question #1 – a measure of dizziness and light-headedness. From both a clinical and a regulatory perspective, a reduction in dizziness is a very important factor in demonstrating an impact on this disorder and therefore, in our view, this is a very promising result.

TD-9855 also increased systolic blood pressure (the amount of pressure in the arteries during the contraction of the heart muscle). This is an outcome which, although not as important as the one stated above, adds further credibility to the treatment’s positive impact on symptoms. Furthermore, there were no seriously adverse drug-related events reported and the treatment was well tolerated. Given that therapies for nOH are very limited, Theravance’s TD-9855 has the potential to serve a significant unmet medical need.

We view the above results as an encouraging data-set for an asset which has not been captured by analyst models. Encouragingly, Theravance also concluded discussions with the FDA on the design of a phase III study and plans to initiate this in late 2018 or early 2019. Our analysis suggests that TD-9855 has the potential to become a c.$500m revenue generating product – a figure which alone underpins the current valuation of the shares in our view.

Lucinda Crabtree
1 August 2018

Q1 results

Theravance Biopharma reported its Q1 2018 results earlier this week, which included an update on a couple of development assets. As a reminder, the key pipeline drivers here are the JAK (pan-Janus Kinase inhibitor) programmes and TD-9855 (in neurogenic orthostatic hypotension). There was some news on the latter, with increased clarity provided on when we can expect data from its Phase IIa study. This is now expected by the end of July 2018, making this a near-term point of focus for investors.

Meanwhile, there was a slightly disappointing update on Velusetrag, following discussions with the FDA about the way forward for this asset in gastroparesis. It has become increasingly clear that a large, costly Phase III study would be required, and the company has elected not to pursue further development, in order to focus on other areas of its pipeline. Nevertheless, its collaboration partner on this asset, AlfaSigma, has exercised its option to develop and commercialise Velusetrag, resulting in a $10m payment to Theravance, which maintains exposure to the asset’s future success through future milestones and royalties.

Overall, Theravance Biopharma is gradually refining its pipeline and priority areas. Looking out through the rest of this year, the encouraging progress in Trelegy Ellipta (an on-market GlaxoSmithKline COPD drug from which Theravance receives royalties), further data on TD-9855, the potential approval in the US of Revefenacin (also for patients suffering from COPD) and the start of its JAK studies in partnership with Janssen (a J&J company), should build confidence in the company’s growth prospects.

Lucinda Crabtree
11 May 2018

Good progress

A mix of positives and negatives in Theravance Biopharma’s recent financial results. On balance, however, the update demonstrates good overall progress within its pipeline.

First the positives. Following the announcement of a global collaboration with Janssen (a Johnson & Johnson company) last month, Theravance has announced the initiation of two new trials investigating its pan-Janus Kinase inhibitor (JAK-inhibitor for short) in ulcerative colitis (Phase IIb/III) and Crohn’s disease (Phase II). This is further encouraging news on one of the company’s most exciting programs which is attracting increasing attention, and the trial in Crohn’s broadens the opportunity set for this asset. As well as the attractive financial aspects of this deal, Janssen has existing expertise in the field, which adds firepower to the program’s development and ultimate commercial potential.

Meanwhile, among other expected near-term milestones, Theravance confirmed the timing of the potential approval of revefenacin in the US later this year, for patients suffering from COPD. It also expects data from its Phase IIa study in TD-9855 in patients with symptomatic neurogenic orthostatic hypotension (nOH – a low blood pressure problem which is mostly seen in patients with other underlying diseases such as Parkinson’s) towards the end of the first half of this year. This is a key focus for the company – it is confident about what it has seen so far in this program and hopes to move into Phase III by the end of this year or early next.

Encouragingly, management also announced its intention to move an inhaled JAK-inhibitor, which represents the next program to emerge from its research platform, aimed at discovering localised medicines that target diseased tissues without systemic exposure, into first-in-human studies in late 2018 or early 2019.

Offsetting these positives somewhat, the company announced a slowdown in sales of its anti-infective, vibativ, and that it was discontinuing a trial investigating the drug in bacteraemia. Meanwhile, there was slightly disappointing data from a post-marketing study in revefenacin – regulatory approval did not hinge on this trial but more positive data could have further expanded the opportunity for the asset and provided additional marketing material. Nevertheless, there were some positive aspects to the trial data and this still represents a reasonable opportunity for the company to pursue.

Overall, however, we are encouraged by the progress being made in the programs which in which we have most conviction. Positive outcomes in any one of Theravance Biopharma’s pipeline assets could more than justify the current share price. Further development progress and additional pipeline opportunities should, therefore, continue to drive broader investor interest in this business and support a materially higher share price.

Lucinda Crabtree
1 March 2018

Neil's View

The market has exhibited a fickle tendency towards the US biotechnology sector as a whole in recent months so it is worth reminding investors that our interest is focused on the specific and compelling attractions of individual biotechnology companies. Their return to form in recent weeks is pleasing but it is a drop in the ocean when compared to the long-term potential that they hold.June 2017

In order to manage the overall healthcare burden governments need to encourage innovative therapies that have the potential to reduce overall healthcare expenditure. These include new therapies that help to keep people out of hospital or advances in treatments that turn health conditions that were previously seen as terminal into chronic or even curable conditions.February 2017

Since our initial investment the shares have performed very well… The market does appear to be sitting up and taking notice of this exciting business but the share price continues to attribute very little value to the development pipeline. In our view Theravance Biopharma’s share price continues to materially underappreciate the business’ considerable long-term potential.September 2016

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
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