Why Theravance Inc.'s 22% Drop Isn't What It Appears

Theravance shares got clobbered... or did they? Find out the real story behind this drop and why shareholders should be thrilled.

Jun 3, 2014 at 1:04PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Theravance (NASDAQ:THRX), a developer of small-molecule drugs to treat respiratory diseases, bacterial infections, and central nervous system disorders, tumbled as much as 22% this morning. However, before you lunge for the sell button, consider that this was a planned drop as the company completed its spin-off of Theravance Biopharma (Nasdaq: TBPH) today.

So what: This move is no surprise, as Theravance had examined strategic alternatives last year and decided it was in the company's and shareholders' best interests to split into two separate entities. The Theravance that you see now will become a royalty management company that reaps the benefits of milestone and royalty payments associated with a handful of COPD assets tied to its collaboration with GlaxoSmithKline (NYSE:GSK). The partners currently have Anoro Ellipta and Breo Ellipta approved by the FDA for long-term COPD maintenance, with both drugs possessing blockbuster annual peak sales potential. This is the portion of the company that will be paying out $0.25/quarter in dividends moving forward.

On the other hand, Theravance Biopharma will be comprised of the company's remaining clinical-stage assets not tied to its Glaxo collaboration. This is the wild card of the group, since it pays no dividend and has no FDA-approved products.

Now what: If you were a shareholder as of the May 15 record date you now own shares in both companies, and I believe that balance of dividend payments from one and clinical pure-play from the other is worth hanging onto over the long run. However, looking at the two individual assets from the outside, Theravance's royalty management company is clearly the more attractive of the two, with a healthy dividend yield above 4% and, following its recent debt financing, ample cash on hand to fund this dividend for years. With the potential for more collaborative COPD assets to reach market, this would be the company out of the two that I'd suggest you follow the closest.

Both Theravance entities may offer plenty of potential, but neither is likely going to be able to keep pace with this top stock over the long run
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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