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What: Shares of Theravance (NASDAQ: THRX), 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 (NYSE:ELN) 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.

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