Highlights include Theravance (THRX), ViroPharma (VPHM), Cubist (CBST), Pfizer (PFE), Wyeth (WYE) and Johnson & Johnson (JNJ).

Theravance Close to Commercialization; Competition a Concern

Theravance (THRX) reported 4Q08 results on February 12, 2008.

Revenue came in at $5.9 million for the 4th quarter of 2008 compared with $5.6 million for the same period of 2007. For the full year of 2008, revenue was $23.1 million, compared with $22.0 million for the full year of 2007. Revenues in 4th quarter and full year of 2008 were in line with our estimates.

Net loss for the 4th quarter and full year of 2008 was $15.9 million and $93.6 million, respectively, compared with $33.1 million and $160.0 million for the same periods of 2007. Net loss per share was $0.26 and $1.53 for the 4th quarter and full year of 2008, respectively, compared with a net loss per share of $0.54 and $2.64 for the same periods of 2007. Fourth quarter net loss or EPS was better than our estimate of $21.1 million or $0.34 per share on adjusted basis. Full year net loss or EPS was also better than our estimates of $93.7 million or $1.55 per share.

Cash, cash equivalents and marketable securities totaled $200.6 million as of December 31, 2008. Theravance had $172.5 million convertible notes sitting on its balance sheet as of December 31, 2008.

With the cost saving restructuring initiated in April 2008, coupled with top line growth, net loss will continue to narrow in the coming quarters. Theravance should become profitable in 2012 according to our model with EPS of $0.05. Excluding share based expenses, EPS should be $0.42 per share.

Final Approval of Telavancin is Expected in 1Q09

Theravance has yet to commercialize a product so far. The company's lead program, Telavancin, received a favorable opinion from the FDA's advisory committee for the treatment of complicated skin and skin structure infections (cSSSI), and we expect final approval in 1Q09.

The company also filed an NDA in January 2009 for Telavancin for the treatment of hospital acquired pneumonia (HAP) and we expect the approval in late 2009 or early 2010.

Although the company is approaching commercialization, we remain concerned about the competition in the field of bacterial infections. Not only will Telavancin have to compete with marketed branded products -- ViroPharma's Vancocin (VPHM), Cubist Pharmaceutical's Cubicin (CBST), Pfizer's Zyvox (PFE) and Wyeth's Tygacil (WYE) -- the drug will also have to fight off competition from generic versions of Vancomycin and other drugs in clinical development like Pfizer's Dalbavancin (second approvable letter issued in December 2007) and Johnson & Johnson's Ceftobiprole (JNJ) (approvable letter issued in the U.S. in March 2008; filing under review in Europe, Australia, Canada and other countries). Additionally, one or more of these drugs will compete with Telavancin in the HAP setting as well.

We have a neutral weight on Theravance with a price target of $19.5.