What: Shares of Theravance (UNKNOWN:THRX.DL), a healthcare royalty management company with a focus on respiratory products, fell more than 12% during the month of July, according to data from S&P Capital IQ.
Prescription data for Breo Ellipta looked especially positive, as it managed to grow 44% over first quarter volume. If these products can continue to grab market share, it certainly bodes well for future results. The company also managed to report an income from operations of $5.1 million, up sharply from the $700,000 reported from the the first quarter.
Now what: While the pickup in sales of Relvar/Breo Ellipta and Anoro Ellipta is certainly encouraging, the company remains in a very awkward financial position. While it's great to see the company now generating income from operations, interest payments on the company's huge debt load are still causing the company to report a net loss, which makes the company's decision to send huge dividend checks to investors seem all the more bizarre. It's worth noting that it costs more than $28 million per quarter to make the dividend payments, which was almost triple the company's revenue during the quarter!
With $229 million in cash on the balance sheet, Theravance appears to have the fire power to keep making those dividend payments for quite some time. However, an investor today is betting on some serious growth in sales of Relvar/Breo Ellipta and Anoro Ellipta in order for the company to generate enough cash from operations to cover the interest payments and the dividend. While this certainly could happen, it continues to feel like the company is playing a game of chicken with the company's cash pile. This Fool is going to remain far away from the stock until the company proves that it can generate enough profit from operations to pay the interest and dividends without raiding its bank account.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.