Elan will receive a total of 21% of the royalties earned by Theravance from GlaxoSmithKline on the four respiratory medicines, and 20% of that income stream will be paid to Elan shareholders as a dividend.
The transaction is subject to shareholder approval. Theravance shares rose the most in almost a month.
Elan is adopting an investment model pioneered by Pablo Legorreta, CEO of Royalty Pharma, which has offered to buy Elan for about $5.7bn. The firm’s board unanimously rejected the takeover bid last month. Elan plans to announce several more deals this year, CEO Kelly Martin said.
“This is just one piece of the puzzle,” Mr Martin said. “This deal allows us to invest our long-term cash flow into interesting clinical and commercial assets.”
Elan’s hunt for new assets stems from Biogen Idec’s Feb 6 agreement to buy Elan’s stake in the Tysabri multiple sclerosis drug for $3.25bn in cash plus future royalties.
Elan said at the time it planned to use the cash for possible acquisitions and would return some of the proceeds to shareholders.
Royalty Pharma offered $11.25 for each of Elan’s American depositary receipts. Investors in Elan tendered only 15% of the shares last month when Elan did a share buyback at that price, in what Adrian Howd, an analyst at London’s Berenberg Bank in London, said was a vote of confidence in management.
With the deal, the longer- term prospects of Elan’s business now feels more solid with limited risk, Mr Howd said. “These assets are at the lower end of the risk spectrum” given Glaxo’s strong commercial track record in respiratory drugs.
The investment comes just days after US regulators approved Breo, the first of four drugs that Theravance has been developing with Glaxo.
Breo, an inhaled treatment for airflow obstruction in obstructive pulmonary disease, may generate $4bn in peak sales, according to Ian Somaiya, an analyst with Piper Jaffray & Co.
Separately, Elan is also considering raising debt capital, given interest in the company and attractive rates, it said.