Elan to pay $1bn for Theravance stake

Elan stepped up its bid to keep its independence today by agreeing a $1 billion deal to buy 21 per cent of the royalty that US company Theravance receives from GlaxoSmithKline for its respiratory drugs.

The Irish drugmaker last month rejected a $5.7 billion bid from Royalty Pharma and has made a series of moves to frustrate the bid, contingent on 90 per cent acceptance, since the US investment firm declared its interest in February.

The latest move sees Elan spend some of the $2 billion it has at its disposal following the sale of its share in Tysabri, the multiple sclerosis drug whose lucrative revenue stream Royalty Pharma wants to get its hands on through its bid. Elan has maintained royalty rights of up to 25 per cent in Tysabri.

"The Theravance transaction is an important next step in the implementation of our strategy," chief executive Kelly Martin said in a statement.

“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.”

The deal hands Elan a chunk of Theravance’s interest in four late stage molecules, including Breo, a new chronic obstructive pulmonary disease (COPD) treatment that was approved by the US Food and Drug Administration on Friday.

Anoro, a potentially more profitable COPD drug Theravance is developing with Britain’s Glaxo, is also part of the deal along with another experimental drug awaiting approval, Vilanterol VI, and MABA ‘081, which has completed phase II trials.

The approval of Breo, which will compete with Glaxo’s twice-daily asthma and COPD drug Advair, a roughly $8 billion-a-year drug, means the deal will be earnings’ accretive for Elan from next year, the Dublin-based company said.

Theravance, in which Glaxo has a 27 percent shareholding, has separate royalty agreements in place for each molecule. It will receive 15 percent of the first $3 billion sales of Breo and up to 10 percent of Anoro, if is approved.

Analysts expect Breo, or Relvar as it would be called if approved outside the US, to generate annual sales of $559 million by 2015. Anoro is expected to generate peak annual sales of nearly $1.4 billion.

Elan said it would pass on one-fifth of all royalties from the Theravance deal to its shareholders, matching the dividend they are already set to receive through the royalty stream Elan maintains in Tysabri following its $3.25 billion sale to former US partner Biogen Idec.

Elan shareholders, whom the company have already rewarded through a $1 billion share buyback, have until May 31 to make up their minds on Royalty Pharma’s $11.25 per share bid.

Reuters