Theravance Biopharma Inc. has inked a definitive agreement Royalty Pharma potentially worth more than $1.5 billion to sell all of its units in Theravance Respiratory Co. LLC, representing its 85% interest in royalty rights for GSK plc's Trelegy Ellipta (fluticasone furoate/umeclidinium/vilanterol), a once-daily, single-inhaler triple therapy for chronic obstructive pulmonary disease and asthma.

The arrangement brings an up-front payment of $1.1 billion, as much as $250 million in milestone payments contingent on the achievement of certain Trelegy net sales thresholds between 2023 and 2026, as well as outer-year year royalties, providing the chance to receive an estimated net present value of $200 million.

Theravance aims to begin a multistep process to erase outstanding debt and return capital to shareholders, the company said. First comes repayment of the firm's non-recourse Trelegy notes for about $420 million, which will happen as the deal closes. The company will also launch a tender offer to retire about $230 million in 2023 convertible senior notes, at par, shortly after (and contingent upon) the Royalty arrangement. After paying down debt, while factoring estimated taxes and transaction expenses, the company will have $430 million in the bank.

As gravy in the setup, Royalty is investing in ampreloxetine to the tune of $25 million up front, covering the majority of the costs for an additional phase III trial with Theravance's ampreloxetine in multiple system atrophy, in exchange for unsecured low single-digit royalties. Theravance could collect $15 million more upon the first regulatory approval in the U.S. or Europe. Royalty Pharma stands to reap unsecured royalties of 2.5% on annual global net sales up to $500 million and 4.5% on annual global net sales over $500 million.

Wainwright analyst Douglas Tsao said in a report that the Royalty term sheet "speaks to [the latter's] bullish outlook for ampreloxetine commercially," noting that the deal "comes after Theravance reached alignment with the FDA on a path forward requiring a single study in MSA patients, which we think has a high probability of success." Tsao holds a "buy" rating on the shares (NASDAQ:TBPH) with a $12 price target. The stock, which has reached a 52-week high of $14.91 and a low of $6.10, was trading today at $9.06, up 43 cents.