Theravance Inc (THRX), GlaxoSmithKline plc (ADR) (GSK), Elan Corporation, plc (ADR) (ELN): Who Benefits From This Market Moving Biotechnology Partnership?

Elan & Theravance: Who got the best deal?

According to the press release, Elan Corporation, plc (ADR) (NYSE:ELN) will make a one-time cash payment in the amount of $1 billion to Theravance for a 21% participation interest in future royalty payments from Theravance’s four respiratory collaborations with GlaxoSmithKline plc (ADR) (NYSE:GSK). Of course there is the approved product (BREO-ELLIPTA), the soon to be approved product (ANORO-ELLIPTA), and two Phase 2 candidates. This means that in six years, “if” both products reach peak sales potential then Elan would earn royalties of $210 million during that period, and then $60 million afterwards. Based on this current format, Elan would not create a return on its investment for almost 20 years!

I think it is fairly clear that Elan Corporation, plc (ADR) (NYSE:ELN)’s deal with Theravance Inc (NASDAQ:THRX) is based on their belief that the company’s other two Phase 2 candidates will eventually earn FDA approvals. Both have large sales potential and return larger royalties to Theravance. However, this is a massive risk forElan Corporation, plc (ADR) (NYSE:ELN), a great deal for Theravance, and absolutely no relevance to GlaxoSmithKline plc (ADR) (NYSE:GSK). It appears as though Theravance continues to monetize its products, by squeezing as much profit from the Blockbuster potential as possible. As a result, I say that this $1 billion guaranteed income, is a massive win for Theravance!

The article Who Benefits From This Market Moving Biotechnology Partnership? originally appeared on Fool.com and is written by Brian Nichols.

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