Theravance, Inc. (THRX) and Elan Corporation, plc (ELN, ELA.L) announced that they have entered into a royalty participation agreement by which Elan will acquire a participation interest in potential future royalty payments related to four respiratory programs partnered with GlaxoSmithKline plc (GSK, GSK.L): Relvar Ellipta/Breo Ellipta, Anoro Ellipta, Maba (Bifunctional Muscarinic Antagonist-Beta2 Agonist) monotherapy (GSK961081, or MABA '081), and vilanterol (VI) monotherapy.
As the terms of the deal, Elan will make a one-time cash payment of $1.0 billion to Theravance in exchange for a 21% participation interest in the potential future royalty payments from the four programs when, as and if received by Theravance.
For Relvar Ellipta/Breo Ellipta and VI, Theravance is entitled to receive royalties from GSK of 15% of the first $3.0 billion of combined annual global net sales, and 5% of combined annual global net sales above $3.0 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%.
Elan said it 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.
Separately, Elan said it 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 instalments.
Elan said it expects the transaction to be earnings accretive (pre-amortisation) from 2014.
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