Theravance plans to separate its businesses into two independent publicly traded companies. The move comes as two of its investigational respiratory drugs, Breo and Anoro, are being reviewed by regulators for potential marketing approval. Both drugs are partnered with GlaxoSmithKline, a Theravance partner for more than a decade.

The two new companies formed by the split, Theravance Biopharma and Royalty Management, will proceed with different business models, giving investors a choice about which approach is best aligned with their investment philosophies.

The announcement also comes amid continued speculation that the South San Francisco-based biotech is at the top of many Big Pharma acquisition lists, especially GSK, which owns 27 percent of the biotech and is its largest shareholder. Theravance management decided it would rather split the company than be acquired. Shares of the company rose 10 percent on the announcement and have risen 43 percent in the past 12 months.

“Following a review of alternatives to maximize the value of our portfolio, we have decided to separate our biopharmaceutical discovery, development and commercialization operations from our late-stage partnered respiratory assets,” says Rick Winningham, Theravance CEO. “We believe this separation will provide investors with the opportunity to unlock potential value from two disparate sets of assets, better align employee incentives and provide a consistent return of capital to stockholders of Royalty Management company.”

The split will be based mainly on the stage of development of the company’s pipeline. Discovery through mid-stage assets will be folded into Theravance Biopharma, which will leverage its multivalent drug discovery platform and small-molecule product candidate pipeline currently focused on respiratory, central nervous system/pain, gastrointestinal disorders and infectious diseases. This includes several programs partnered with GSK, its approved antibiotic Vibativ, as well as its existing collaborations with other drugmakers such as Merck, Alfa Wassermann, Clinigen, and R-Pharm.

The other company, Royalty Management, will manage the late-stage partnered respiratory assets and associated potential royalty revenues with the intention of returning capital to stockholders. Analysts have projected annual sales of both drugs of more than $6 billion combined. Both are pending approval for use as a once-daily treatment for chronic obstructive pulmonary disease, a top cause of death in the United States. Theravance is entitled to a 15 percent royalty on the first $3 billion in sales of both drugs.

In a conference call following the announcement, Winningham said that the splitting of the company did not rely on the approval of either drug awaiting a regulatory decision. The company expects both drugs to be approved for marketing, he said.

The split is expected to be completed by the end of the year or in early 2014. Theravance Biopharma is expected to be capitalized with about $300 million at the time of the separation, which is expected to fund operations through significant potential corporate milestones over the following two to three years. Winningham is expected to become CEO of Theravance Biopharma after the split is completed and initially will also be CEO of Royalty Management.