Theravance Royalty Deal With Elan, Good For Baupost, Fidelity

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Fidelity Investments and hedge fund Baupost Group LLC, who hold substantial stakes in Theravance Inc (NASDAQ:THRX), gained on Monday after the biopharmaceutical company entered into a deal for a $1 billion royalty with Irish drug maker Elan, reports Reuters.


Theravance Inc (THRX) Stocks Are Up

Theravance Inc (NASDAQ:THRX) stocks were up 13 percent on Monday in early trading, to $39.62 on NASDAQ. Including today’s movement, the stock has gained about 70 percent since April.

Hedge fund Baupost holds about 13.6 million shares of Theravance, which is almost equal to a 14 percent stake in the pharmaceutical firm. Fidelity along with its Fidelity OTC Portfolio owns about 13 million shares granting a 13 percent stake. Fidelity and Baupost are among the largest shareholders for Theravance, while GlaxoSmithKline (ADR) (NYSE:GSK)  (LON:GSK) with a 27 percent stake is the biggest shareholder.

Terms of Deal

Elan, in order to maintain its independence, will acquire 21 percent of the royalties that Theravance Inc (NASDAQ:THRX) receives from GSK.

Drugs included in the deal include Breo Ellipta, which just got  clearance from the U.S. Food and Drug Administration, and two other treatments in late-stage testing. Apart from these, Anoro Ellipta has also been named in the deal. Anoro Ellipta is a treatment for chronic obstructive pulmonary disease, and the drug makers are currently seeking regulatory approval in both the United States and Europe.

The U.S. Food and Drug Administration, on Friday, cleared Breo Ellipta for some treatments, and the drug will be called Relvar Ellipta in Europe, where it is still under review.

The royalty deal is expected to be completed by June, provided it gets the backing of Elan’s shareholders. Elan may mobilize 20 percent of its revenues from the agreement to return to the shareholders in the form of dividends. There have been reports that Elan might have received a takeover bid from New York-based Royalty Pharmaceutical.

Baupost Holdings

At the end of 2012, Baupost had $28.1 billion in assets, as per the filing with SEC. Seth Klarman’s Baupost Group has reduced its exposure in equities in the third quarter last year, significantly, including a cut of Theravance Inc (NASDAQ:THRX). Other significant cuts in Q3 were in Hewlett-Packard Company (NYSE:HPQ) by approximately 46 percent, and BP Plc (NYSE:BP) (LON:BP) by approximately 16 percent. For the fourth quarter, Baupost sold more than 3 million shares of Oracle Corp and 4 million shares of News Corp (NASDAQ:NWSA). The fund increased its holding in NWS and Idenix Pharmaceuticals, Inc. (NASDAQ:IDIX). For the fourth quarter, no major activity was noticed for Theravance Inc (NASDAQ:THRX).

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