Biotech Companies Breaking Up

If pharmaceutical companies can break up, why not biotech companies?

Following in the footsteps of Abbott spinning out its drug division into AbbVie (NYSE: ABBV  ) , and Pfizer spinning out its animal health division into animal health products into Zoetis, Theravance (NASDAQ: THRX  ) is splitting up.

Unlike big pharma though, biotech companies don't tend to have multiple products that have little to do with each other. Instead, Thervance is separating its products, which should be generating revenue shortly, from those that will burn cash for awhile.

Thervance isn't the first biotech to think of the idea. Multiple biotech companies have made similar splits with varying degrees of success.

A few years ago, genetic-tests maker Myriad Genetics spun off its drug discovery business, Myrexis. It didn't work out too well for investors that held, either. Myrexis is trading on the pink sheets, nearly worthless, while Myraid is down about 25% since the split. Of course, you could argue that Myraid would be down more if it had held onto the drug development business, which didn't end up developing much.

PDL BioPharma (NASDAQ: PDLI  ) did much better with the spin out of its development stage program into Facet Biotech. The biotech started trading at $13 per share, and was eventually taken out by Abbott for $27. The main assets now reside in Abbott's aforementioned spinout AbbVie in conjunction with Biogen Idec, which was developing the drugs with PDL. If the drugs are successful, maybe the duo will spin them out into a joint venture, completing the cycle?

Most recently Elan (UNKNOWN: ELN.DL2  ) spun out its drug discovery business into Prothena. Without the burden of a drug discovery unit, the parent company is now being pursued by Royalty Pharma, although Elan isn't keen on its current offer.

One has to think a potential sale is one of the driving forces in Thervance's decision. The assets that should be generating revenue soon -- lung drugs Breo and Anoro -- have been submitted to the Food and Drug Administration for marketing approval by Thervance's partner GlaxoSmithKline (NYSE: GSK  ) . Much like PDL, the new biotech company will essentially be a holding company, collecting royalties from Glaxo, and paying it out to shareholders as dividends.

Unlike PDL, the holding company will only have one partner, making it ripe for a takeout. Thervance, of course, has long been speculated as a takeout target of Glaxo, but the split makes things much cleaner; pharmas don't like to pay extra for entire biotech companies if they don't want all the assets. The new entity makes for a clean takeout of the assets by Glaxo to avoid paying the royalty. Of course, Glaxo could have purchased the full rights to the assets directly from Thervance, so one has to assume that either Glaxo isn't interested at the moment, or that Thervance's management wasn't willing to let it go for a price Glaxo was willing to pay.

Either way, splitting into two biotech companies will make it easier for Glaxo to make a move when/if it makes financial sense.

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  • Report this Comment On April 26, 2013, at 6:48 PM, SonoraWM wrote:

    Seems to be a smart move by thrx and beneficial to shareholders other than GSK (if the royalty co does go public). Like the author notes, it seems gsk could have bought the assets outright. So one inference is thrx either didn't like the price or wants to be positioned for maximal value by giving them a market value.

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