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.

So what: The company reported second quarter results during the month that contained mixed news. On the positive side, both Relvar/Breo Ellipta and Anoro Ellipta saw market share gains during the quarter which helped to lift sales 37% over first quarter results. While these respiratory drugs are currently marketed and sold by GlaxoSmithKline, Theravance helped to finance their development and receives a royalty on their sale. 

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.
There would be a lot of reasons for investors to cheer if the report ended there, but interest payments on the company's huge $738 million debt load caused the profit from operations to swing to a net loss of $0.07 per share during the quarter, which was worse than the $0.06 loss that analysts were expecting.
Despite reporting a net loss, Theravance continued paying a generous dividend of $0.25 per share. The huge dividend and interest payments continue to take its toll on the company's cash balance, which once again dropped and now stands at $229 million.

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.