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Theravance and Elan enter into a billion-dollar royalty participation deal
by Jeffrey Bouley  |  Email the author


SOUTH SAN FRANCISCO, Calif. & DUBLIN—In what may be in part an attempt to fend off a takeover attempt of Elan Corp. by Royalty Pharma, Theravance Inc. and Elan on May 13 entered into a royalty participation agreement wherein Elan will purchase a participation interest in potential future royalty payments related to four respiratory programs partnered with GlaxoSmithKline plc (GSK): Relvar Ellipta/Breo Ellipta, Anoro Ellipta, MABA (Bifunctional Muscarinic Antagonist-Beta2 Agonist) monotherapy (GSK961081, or MABA '081), and vilanterol (VI) monotherapy.
Under the terms of the agreement, Irish company Elan will make a one-time cash payment of $1 billion to U.S.-based Theravance in exchange for a 21-percent participation interest in the potential future royalty payments from the four programs when, as and if received by Theravance.  
"We are very excited to partner with Elan in a transaction that recognizes the significant value of four programs from our GSK collaborations targeted at respiratory disease," said Rick E Winningham, Theravance's CEO. "This agreement complements our strategy to facilitate and accelerate the return of capital to our stockholders and build value, consistent with our recently announced plan to separate Theravance into two entities, Royalty Management Co. and Theravance Biopharma."
Over at Elan, CEO Kelly Martin said, "This transaction, upon closing, will immediately diversify our business with an investment in four high quality and late stage clinical assets within a large and growing therapeutic area. This diversification should benefit our shareholders by spreading the inherent risk embedded in any one specific asset. In addition, the long-term and future potential cash flow streams and net income will be shared with investors both directly —through a dividend pass-through
—and indirectly through overall after tax earnings."  
"Being involved, even indirectly, with an important therapeutic area that addresses the needs of millions of patients who suffer from respiratory disease is particularly meaningful to all of us at Elan," he added.
Relvar Ellipta/Breo Ellipta, Anoro Ellipta and VI monotherapy have been developed under the LABA collaboration with GSK. For Relvar Ellipta/Breo Ellipta and VI, Theravance is entitled to receive royalties from GSK of 15 percent of the first $3 billion of combined annual global net sales and 5 percent of combined annual global net sales above $3 billion. If Anoro Ellipta is approved and commercialized, royalties on annual global net sales are upward tiering and range from the mid-single digits to 10 percent.
The transaction does not include any royalty participation interest associated with UMEC/VI/FF, an investigational medicine also in development under the LABA collaboration with GSK.  
MABA '081 is an investigational medicine in development under the strategic alliance between Theravance and GSK. If MABA '081 is successfully developed and commercialized as monotherapy, Theravance is entitled to receive royalties from GSK of between 10 percent and 20 percent of the first $3.5 billion of annual global net sales and 7.5 percent of all annual global net sales above $3.5 billion.
The transaction does not include any royalty participation interest associated with MABA '081 in combination with any other therapeutically active component, including an inhaled corticosteroid, or any other MABA compound as monotherapy or in combination.
The transaction is not subject to any material conditions, other than approval by Elan's shareholders. Elan plans to promptly prepare the required documentation to enable a shareholder vote, which Elan has agreed to hold within 35 days. If approved by Elan's shareholders, the parties expect the transaction to be consummated by the end of June 2013.
Where Royalty Pharma figures into all this, say some market-watchers, is that the deal between Theravance and Elan may be intended, at least in part, to act as a "poison pill" to derail Royalty's attempt to acquire Elan for about $5.7 billion, a move that Elan has so far rebuffed. The theory by some is that the Theravance deal will add assets to Elan that Royalty Pharma may not want to acquire.
Also, Elan wants to diversify from its neurological focus after selling its 50 percent interest in multiple sclerosis treatment Tysabri to Biogen Idec in February for $3.25 billion plus royalty rights. Those royalty rights are what Royalty Pharma seems to have its eyes on, and has tried to convince shareholders that Elan is incapable of handling or pulling off big deals. This deal with Theravance, some say, is an attempt to instill confidence in shareholders that such is not the case.
Martin has countered such thoughts with an insistence that the deal with Theravance was simply good business, and has nothing to do with Royalty Pharma, maintaining that the Royalty offer is neither credible nor of any substance.

Code: E05131301



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