Why Theravance Shares Soared Again

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Theravance (UNKNOWN: THRX.DL  ) , which specializes in developing therapies to treat central nervous and respiratory disorders, rallied as much as 16% -- its second straight day of double-digit gains -- following the announcement that Elan (UNKNOWN: ELN.DL2  ) had entered into a $1 billion royalty deal with Theravance.

So what: On the heels of Friday's approval from the Food and Drug Administration of inhaled long-acting COPD maintenance treatment Breo Ellipta, which was co-developed by Theravance and GlaxoSmithKline (NYSE: GSK  ) , cash-rich Elan agreed to pay Theravance $1 billion for a 21% royalty stake in four of Theravance's respiratory program drugs. These include the recently approved Breo Ellipta, as well as Breo Anoro, which is also being developed with Glaxo and is forecast to also be a blockbuster drug if approved. With respect to Elan, in addition to gaining a much needed revenue stream from this deal, it also adds a monkey wrench into private equity firm Royalty Pharma's $6.7 billion, or $11.25 per share, takeover bid, which Elan's board has voted overwhelmingly against.

Now what: Talk about your Monday morning deals out of left field! I give Elan credit for thinking outside of the box, but $1 billion for a "stake" in Theravance's respiratory program seems like a bit of a stretch. It could take an extremely long time before Elan sees any big benefits from this deal, and I highly doubt it'll add significantly to shareholder value any time soon. Conversely, for Theravance it's a great deal as it received top-dollar for a stake in its royalty revenue stream. Shareholders in Theravance certainly have no reason to complain this year and should get even more earnings and pipeline visibility when it splits into two separate companies later this year or early 2014.

Craving more input? Start by adding Theravance to your free and personalized watchlist so you can keep up on the latest news with the company.

While you can certainly make huge gains in biotechs like Theravance, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2426992, ~/Articles/ArticleHandler.aspx, 9/25/2016 10:25:03 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ELN.DL2 $0.00 Down +0.00 +0.00%
Elan CAPS Rating: ***
THRX.DL $0.00 Down +0.00 +0.00%
Theravance CAPS Rating: **
GSK $43.42 Down -0.16 -0.37%
GlaxoSmithKline CAPS Rating: ***