Elan has announced a royalty agreement with Theravance, by which Elan will make a one-time cash payment of $1 billion to Theravance in exchange for a 21% participation interest in the potential future royalty payments from four respiratory programs for which Theravance has partnered with GlaxoSmithKline, when and if received by Theravance.

“The transaction announced today is a truly unique opportunity,” said Kelly Martin, Elan CEO. “This investment enables our shareholders to gain exposure to four high-quality, late-stage assets within the large and growing global respiratory market. The commercial and marketing execution for these assets will be driven by GSK, the dominant global leader in this therapeutic area with a current market share of more than 40%.”

“The opportunity to diversify our business across a number of dimensions, grow the P&L and offer our shareholders participation in additional high-margin assets with the potential for extremely long-term cash flow is attractive for the short, intermediate and long term,” he said. “These four respiratory assets combined with Tysabri—currently approved for Relapsing Remitting Multiple Sclerosis—as well as their aggregated potential cash flow, provides a one-of-a-kind financial platform and investment thesis for public equity investors globally.”

“The Theravance transaction is an important next step in the implementation of our strategy,” he added. “It is, however, only one piece of the equation and, to that end, we intend to make further announcements regarding other assets and specific opportunities in the near future. All of our strategic activity has been, and will continue to be, consistent with our guiding principles of achieving balance from an investment, risk and return, and timeline perspective.”

Elan will initiate a cash dividend policy enabling its shareholders to benefit directly from the long-term cash flow expected to be generated by the four respiratory products under the agreement with Theravance. The percentage to be paid out directly to shareholders will be 20% of the amounts paid to Elan, and the company expects to pay these cash dividends in twice-yearly installments.

“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, CEO of Theravance. “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 Company and Theravance Biopharma.”

The four GSk programs are: RELVAR ELLIPTA/BREO ELLIPTA, ANORO ELLIPTA, MABA (Bifunctional Muscarinic Antagonist-Beta₂ Agonist) monotherapy (GSK961081, or MABA ‘081), and vilanterol (VI) monotherapy.  For RELVAR ELLIPTA/BREO ELLIPTA and VI, Theravance is entitled to receive 15% of the first $3 billion of combined annual global net sales, and 5% of combined annual global net sales above $3 billion. If ANORO ELLIPTA is approved and commercialized, royalties on annual global net sales are tiered and range from the mid-single digits to 10%. 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 a monotherapy, Theravance is entitled to receive royalties of 10% to 20% of the first $3.5 billion of annual global net sales, and 7.5% of all annual global net sales above $3.5 billion.

The transaction is not subject to any material conditions, other than approval by Elan’s shareholders. If approved, the transaction should be complete by the end of June.