Few industries offer investors as much long-term opportunity as the health-care sector. It's filled with tales of stocks doubling in a day on positive clinical data or the approval of a new medical device, as well as companies being chopped off at the knees after an experimental compound disappoints in clinical trials.

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What the health-care sector is not, generally speaking, is a stomping ground for income-seeking investors. Of the 607 publicly traded health-care stocks, just 80 currently pay a dividend to shareholders. Out of those 80, just 33 pay a dividend of 2% or higher; and what's more, this figure includes special one-time dividends over the past year. In other words, aside from health-care conglomerates and well-established pharmaceutical conglomerates, it can be difficult to find a solid dividend-paying company in the health care sector.

Breaking this down even further, there are 239 publicly traded biotech companies and a mere six pay a dividend. Only two, Amgen and PDL Biopharma, pay out more than 2% per year. Earlier this week, however, one biotech entered the fray and jumped to No. 2 on the list, behind only PDL and its 7% yield, by announcing what will amount to a projected yield of 3.7%.

Income investors, feast your eyes on Theravance (NASDAQ: THRX).

The logistics behind Theravance's split
If the name sounds familiar, that could be because I tried to bring your attention to Theravance a little more than a week ago as a logical buyout candidate following its upcoming split. Announced last April after ending its review of strategic alternatives, Theravance is planning to officially split into two separate companies, Royalty Management Co. and Theravance BioPharma, as of June 2, with a record date for shareholders of May 15. Shareholders on record that day will be paid a dividend in the form of shares for Theravance BioPharma. 

The split itself will move Theravance's two development programs in vastly different directions. In one corner will be Royalty Management Co., which will boast Theravance's FDA-approved COPD assets such as Breo Ellipta and Anoro Ellipta that were developed in collaboration with partner GlaxoSmithKline (GSK 0.67%). In fact, the duo got word on Thursday that Anoro Ellipta was granted EU marketing authorization in Europe, which follows its U.S. approval in December and emergence on pharmacy shelves just two weeks ago. In addition to these two approved products, Theravance and Glaxo have a handful of additional clinical-stage and preclinical COPD compounds they're collaborating on.

Theravance BioPharma, on the other hand, will be composed of the companies' remaining small-molecule discovery candidates focused on bacterial infections, central nervous system pain, respiratory disease (outside of COPD), and gastrointestinal motility dysfunction. Obviously, this independent spinoff will be a bit of a wild card, given that its entire success will be based on clinical and preclinical studies.

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Is this payout sustainable?
Theravance announced on Tuesday night that it anticipates paying a quarterly dividend of $0.25 per share beginning in the third quarter, which based on its current share price and projected out for a full year equals a yield of 3.7%!

The big question now is whether this payout from Royalty Management Co. will be sustainable.

According to its quarterly results, Theravance ended the quarter with $430.8 million in cash and cash equivalents and stood ready to recognize proceeds of $434.3 million from the issuance of $450 million in royalty notes tied to the formation of Royalty Management Co. Combined, that's roughly $865 million in cash and cash equivalents that Royalty Management Co. can use to pay shareholders a dividend and to run general corporate activities. Based on its cash balance, the dividend would appear to be safe and sustainable, at least for the foreseeable future.

There's also the need for it and GlaxoSmithKline's approved COPD therapies to see a steady ramp-up in sales if its dividend is going to be sustainable. The good news here is that annual peak sales estimates for Breo Ellipta and Anoro Ellipta, which are both inhaled COPD therapies that work as long-acting airflow obstruction treatments, are each around $1 billion. With 40% of Theravance's royalty revenue going toward a separate bank account to help pay back the aforementioned loan in 2029, it would appear that if the sales ramp-up is moderately successful, this dividend would again be sustainable.

Also factor in that GlaxoSmithKline's marketing staff is going to very intently promote these therapies, with its blockbuster COPD therapy Seretide now off patent and biosimilars looking as if they'll be ready to hit the market by 2016 or 2017. Seretide was a nearly $9 billion drug for GlaxoSmithKline last year, and generic competition will eat away at those billions quickly, so it'll need to be aggressive with its marketing tactics, which could be good news for Theravance and its shareholders.

But keep this in mind
As you can gather from my assessment, I'm optimistic on Theravance, and especially Royalty Management Co. However, I'm also not turning a blind eye to the fact that risks remain. Keep in mind that the company's $450 million note will need to be paid back in 15 years and that it accrues 9% in interest per year. In essence, half of Royalty Management Co.'s cash is borrowed, so try working that value out of your personal assessment of the company.

In addition, the combination of GlaxoSmithKline and Theravance has worked wondesr for COPD patients, but it's not the only game in town. AstraZeneca's Symbicort, for example, has been a blockbuster in the COPD space, but it, too, will soon lose its patent protection. The potential of being pressured by branded drug sales from Big Pharma as well as generic biosimilars could make the launch of Breo Ellipta and Anoro Ellipta tougher than investors realize.

Overall, though, I expect Royalty Management Co. to be quite successful, and I believe income investors could see some healthy benefits from its $1-a-year payout. If you're looking for a fresh income stream with the opportunity for strong growth potential, I'd suggest giving Theravance a closer look.