What: Shares of Theravance Biopharma (NASDAQ:TBPH) jumped by more than 10% in early trading Monday before finishing the day up nearly 7% on news that it had inked a collaborative deal with generics Goliath Mylan (NASDAQ:MYL) to develop a treatment for COPD.

So What: Mylan is handing over a modest $15 million up front and up to $220 million in potential milestone payments to partner on Theravance Biopharma's TD-4208. Mylan is also making a $30 million equity investment in Theravance BioPharma at a price of $18.92 per share.

TD-4208 is a once-daily, long-acting therapy for COPD that is delivered via the mist of a nebulizer, rather than by a handheld device. Theravance Biopharma believes TD-4208's differentiated delivery could help as many as 9% of American COPD patients. If so, that could be a sizable market opportunity. In the United States there are approximately 12.7 million adults diagnosed with COPD, as well as a similar number of people whose COPD might remain undiagnosed.

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As part of the spinoff, Theravance BioPharma will share in payments made by GlaxoSmithKline to Theravance. However, future growth depends on Theravance Biopharma successfully developing its own in-house pipeline products, including TD-4208, which is expected to enter phase 3 testing this year.

Mylan is a market share-leading maker of nebulized respiratory therapies, so this deal gives Theravance Biopharma a well-heeled development partner and equity owner that is already deeply embedded in TD-4208's target market of prescribing doctors.

Whether those advantages could someday help make TD-4208 a top-selling drug remains uncertain, especially since final phase 3 trials have not yet started. However, it is certainly a strong vote of confidence that is encouraging to investors willing to take the risk of a late-stage failure.