Theravance Inc., a big-pharma-backed biotech firm, filed for its initial public offering.

The company, which is one-fifth owned by GlaxoSmithKline plc, proposed a $96 million IPO. It has yet to set the number of shares or their price. But the South San Francisco-based company applied for listing on the Nasdaq exchange under the ticker symbol "THRX."

Theravance said it expects to use proceeds for working capital and other general corporate purposes, such as funding its research and development efforts and investing in its technologies. The 235-employee company is developing small molecules for respiratory diseases, bacterial infections, overactive bladder and gastrointestinal disorders.

Its pipeline includes four product candidates that have advanced into clinical trials in the company's seven years of operation. Its lead bacterial infection candidate, telavancin, is in Phase II, as is another clinical-stage product that is partnered with GlaxoSmithKline, GSK 159797. Six additional products are in preclinical studies.

Though not all of its programs are being developed in partnership with GSK, their relationship includes an option for the London-based pharmaceutical firm to gain access to other Theravance programs. But the companies' current drug development arrangement, which is focused on respiratory diseases, dates to November 2002 when they agreed to collaborate on long-acting beta-2 agonist products for asthma and chronic obstructive pulmonary disease.

Each company contributed four products to the collaboration, though GSK is responsible for development and commercialization costs associated with all eight and will pay Theravance as its products hit clinical, regulatory and commercial milestones. Theravance will make regulatory and commercial milestone payments to GSK, if the latter files for regulatory approval of one of its products, and also if it reaches the market. To date, one product from Theravance has completed a Phase IIa study, as has another from GSK.

Theravance will receive the same royalty rate on resulting product sales regardless of their origin, set in the low- to mid-teens for sales of up to about $4 billion and in the single digits for sales north of $6 billion.

The partners added to their agreement in the spring, when GSK received an option to license product candidates from all of Theravance's other current and future programs that begin prior to Sept. 1, 2007, on pre-determined terms and on an exclusive, worldwide basis. If GSK exercises any of its license options, Theravance would receive an up-front payment, milestone payments and royalties. In addition, GSK would fund all of the development and commercialization costs. Theravance will be obligated at its cost to discover two structurally different products for certain programs into which GSK opts. (See BioWorld Today, April 1, 2004.)

At present, GSK owns about 19.8 percent of Theravance's outstanding stock. But its ownership stake could increase to about 60 percent through the issuance of shares that Theravance may be required to redeem from other stockholders.

In July 2007, GSK has the right to require Theravance to redeem 50 percent of its stock at $35 per share. If the right is not exercised, Theravance's other stockholders have the right to require the company to redeem 50 percent of their stock at $12.50 per share.

In either case, GSK is contractually obligated to pay the full redemption price; however, its maximum obligation for the shares subject to the put is capped at $525 million. If GSK's ownership of Theravance increases to more than 50 percent, GSK will receive an extension of its exclusive option to programs begun prior to Sept. 1, 2012. Otherwise, its exclusive option does not apply to programs begun after Sept. 1, 2007.

Theravance's other major shareholders include Sierra Ventures VI LP, of Menlo Park, Calif., which holds 6.9 percent; Chairman Roy Vagelos, with 5.5 percent; Biotech Growth SA, of Panama, with 4.7 percent; CEO Rick Winningham, with 3.2 percent; Marty Glick, the company's executive vice president of finance and chief financial officer, with 1.6 percent; and Patrick Humphrey, the company's executive vice president of research, with 1.5 percent.

As of March 31, Theravance reported $73.9 million in cash, cash equivalents and marketable securities.

The IPO s underwriters are Merrill Lynch, Pierce, Fenner and Smith Inc., of New York; Lehman Brothers Inc., also of New York; Credit Suisse First Boston LLC, of New York too; Perseus Group LLC, of San Francisco; and Thomas Weisel Partners LLC, also of San Francisco.