Elan signs $1 billion finance deal with Theravance
pharmafile | May 15, 2013 | News story | Research and Development, Sales and Marketing | Elan, Theravance, royalty pharma
Elan has struck a novel deal with Theravance which gives it a share of potential future royalties from its respiratory drugs.
The deal gives Theravance an immediate cash sum of $1 billion to help finance its growth, while for Elan there is a promise of its 21% share of the royalties reaping a profit from this investment.
But Elan’s unusual financing offer also has another motive – the Irish pharma company is currently being pursued as a takeover target by Royalty Pharma, and the Theravance deal could help it evade capture.
By transferring $1 billion from its cash reserves into the Theravance deal, Elan will hope to make itself less attractive to its prospective purchaser.
Royalty Pharma originally offered up to $7.3 billion to buy the Irish firm. But after Elan made a recent share repurchase (also seen as a bid to escape a takeover) Royalty’s bid now stands at $5.8 billion, which it hopes Elan’s shareholders will eventually accept.
But the shareholders are also being called on to vote their approval of Elan’s deal with Theravance, and Elan wants to wrap up the vote and transaction by the end of June.
Ironically, Elan’s deal with Theravance sees it move towards the venture capital model championed by Royalty Pharma.
Major respiratory franchise
Elan is looking to buy a stake in potential future royalty payments related to four respiratory programmes partnered with GlaxoSmithKline – Relvar Ellipta/Breo Ellipta, Anoro Ellipta, MABA (Bifunctional Muscarinic Antagonist-Beta2 Agonist) monotherapy (GSK961081, or MABA ‘081), and vilanterol (VI) monotherapy.
GSK is hoping that the four drugs will provide it with a strong follow-up to its respiratory blockbuster Advair/Seretide, which will face generic competition.
The most advanced of the group is Breo Ellipta, which has just been approved by the FDA as an inhaled long-term, once-daily maintenance treatment of airflow obstruction in patients with COPD, including chronic bronchitis and/or emphysema. It is also indicated to reduce exacerbations of COPD in patients with a history of exacerbations.
The drug is also under review in Europe (where it is known as Relvar Ellipta) and Japan. FF/VI is not approved or licensed in the EU or anywhere outside of the US. The other COPD treatment Anoro Ellipta is also currently under review by the FDA, the EMA and Japan, with a US decision expected on 18 December.
Finance
Theravance plans to split itself into two separate companies – Theravance Biopharma (its R&D led operations) and Royalty Management Co (its late-stage partnered respiratory assets) in order to clarify its financial arrangements.
“We are very excited to partner with Elan in a transaction that recognises the significant value of four programmes from our GSK collaborations targeted at respiratory disease,” said Rick Winningham, Theravance’s chief executive.
“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.”
Kelly Martin, chief executive of Elan commented: “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.”
Martin added: “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.”
For Relvar Ellipta/Breo Ellipta and VI, Theravance will receive royalties from GSK of 15% of the first $3 billion of combined annual global net sales, and 5% of global net sales above $3 billion. If Anoro Ellipta is approved and commercialised, royalties on annual global net sales are upward tiering and range from the mid-single digits to 10 per cent.
The transaction does not include any royalty participation interest associated with UMEC/VI/FF, an investigational medicine also in development with GSK.
MABA ‘081 is another molecule in the Theravance and GSK pipeline. If MABA ‘081 is successfully developed and commercialised as monotherapy, Theravance is entitled to receive royalties from GSK of between 10% and 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 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.
Andrew McConaghie
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