Theravance Biopharma has agreed to divest its entire 85% stake in Theravance Respiratory Company (TRC) to Royalty Pharma for more than $1.5bn in potential value.

TRC receives sales-based royalties generated from worldwide net sales of Trelegy Ellipta (FF/UMEC/VI), GSK’s inhalation therapy for COPD.

Under the terms of the deal, Theravance will receive a total of over $1.5bn, including around $1.1bn in an upfront payment, and up to $250m in milestone payments from 2023 to 2026.

In addition, the company would receive outer-year royalties of around $200m.

Theravance’s partner Innoviva has also signed a similar agreement for the sale of its entire 15% stake in TRC to Royalty Pharma.

Innoviva is expected to receive an upfront payment of $282m, and a potential $50m contingent sales-based milestone payment.

In addition, TRC has transferred all of its stakes and investments in InCarda Therapeutics, ImaginAb, Gate Neurosciences, and Nanolive to Innoviva.

Theravance Biopharma chairman and chief executive officer Rick E Winningham said: “Royalty Pharma is an industry leader in identifying world-class therapeutics and structuring creative financing transactions that support innovative biopharma companies holding royalty interests.

“We believe this transaction for TRELEGY royalties delivers on the strategic value of our economic interest in this important therapy for COPD and asthma patients.

“This transaction underscores our commitment to maximize shareholder value by eliminating debt, accelerating the return of capital to shareholders and strengthening our position as a biopharmaceutical leader.”

As part of the transaction, Theravance intends to repay its outstanding debt and return capital to shareholders through repayment of non-recourse Trelegy notes, worth $420m.

The company will initiate a tender offer to payout about $230m principal amount of its 2023 CONVERTIBLE SENIOR NOTES, and implement a plan to return capital to shareholders.

Upon repaying the debt, taxes and transaction expenses, the company is estimated to have around $430m of cash and is well-capitalised with a streamlined and debt-free balance sheet.

Furthermore, Royalty Pharma would invest $40m to advance the development of Ampreloxetine in multiple system atrophy (MSA) in exchange for royalties.

In exchange, the company would receive future unsecured royalties of 2.5% on annual global net sales up to $500m and 4.5% on net sales over $500m.

Its investment includes a $25m upfront payment and an additional $15m payment, subject to ampreloxetine receiving the first regulatory approval.

Royalty Pharma founder and chief executive officer Pablo Legorreta said: “This transaction reflects our confidence in the significant value that TRELEGY delivers as a triple-combination therapy for COPD and asthma patients, and GSK’s continued global commercial excellence.

“This transaction highlights our ability to provide capital at scale and structure creative funding solutions, allowing Theravance to pursue important strategic initiatives, including the advancement of their internally-discovered, late-stage therapeutic ampreloxetine.”