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Feb 25, 2013

Elan Cool to Royalty Pharma Offer

  • With $3.25 billion coming its way from selling its 50% share in the multiple sclerosis drug Tysabri, Elan has suddenly attracted a would-be suitor looking to buy the company for double that amount—an offer generating a cool response from the biotech giant.

    Royalty Pharma Management, an investment management firm that takes stakes in royalty streams generated by biopharmaceuticals, said today it was offering $6.5 billion for Elan, or $11 per American depository receipt and share in the Irish-owned biotech—3.8% above Elan’s closing share price on Friday.

    That day, Elan announced an outline of how it would use the $3.25 billion it will receive from selling its half-share of all rights plus royalties to Tysabri to Biogen Idec, with which it co-developed the drug.

    Elan’s announcement made no mention of Royalty Pharma’s offer but did disclose plans—which would be upended by a Royalty Pharma deal—to spend $1 billion to repurchase outstanding shares, use part of the money to refinance debt, and invest “a portion” into companies intended to “diversify Elan from a product, science/clinical, therapeutic, and geographic point of view,” by capitalizing on relationships with potential partners in these deals.

    Elan has said it will disclose details on how much of its approximately $600 million in debt will be refinanced when it closes on the Tysabri restructuring, which the company said it expected to occur “in the near future.”

    Royalty Pharma said in a statement it approached Elan Chairman Robert A. Ingram with the offer on February 18, then followed up two days later at a meeting: “Royalty Pharma believes that the risks and lack of earnings visibility associated with Elan’s acquisition and in-licensing strategy are substantial. The pharmaceutical industry is highly competitive and Royalty Pharma believes many companies have suffered poor returns pursuing such a strategy.

    The Royalty Pharma statement also chided the performance of Elan’s management: “While Elan’s management has demonstrated its ability to execute several significant disposals, the current senior management team of Elan has not made any significant acquisitions or in-licensed any significant late stage products for Elan and thus does not have a track record of generating attractive returns from acquisitions or in-licensed products.”

    “Royalty Pharma remains committed to working towards a recommended transaction,” the would-be buyer said earlier today in the statement.

    Royalty Pharma’s offer was greeted with skepticism by an analyst interviewed by Bloomberg this morning. Adrian Howd of Berenberg Bank said the offer undervalues Elan, and that an offer of between $13 and $14 a share was “more rational.”

    Elan responded this morning with a statement acknowledging the offer but not commenting much beyond critical observations of the Royalty Pharma offer’s “highly opportunistic timing” and “heavily conditional nature of this indication of interest.”

    “Any credible proposal which may be made by Royalty Pharma or any other party will of course be considered by the company alongside the strategic transactions and unique investment thesis referred to above,” Elan stated.

    Including Tysabri, Elan finished last year with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) that rose year-to-year by more than 30%, to $220 million—ahead of the company’s goal of $200 million. Tysabri was a bright spot in a quarterly report that showed Elan returning to profitability with net income of $152.8 million, compared with a $134.7 million net loss in Q4 2011. But those results were boosted by $61.5 million in net income from discontinued operations related to Tysabri, as well as Prothena, the spinoff company formed to continue Elan’s early-stage drug R&D unit, and the sale of its R&D unit or “Elan Drug Technology.”

    Founded in 1996, Royalty Pharma owns royalty interests in 37 approved and marketed products with unaudited EBITDA last year of $1.35 billion. Products include Abbott’s Humira®, Johnson and Johnson’s Remicade®, Merck’s Januvia®, Gilead’s Atripla®, Truvada®, and Emtriva®, Pfizer’s Lyrica®, Amgen’s Neupogen® and Neulasta®, and Genentech’s Rituxan®.

    In its most recent deal, announced last May, Royalty Pharma purchased for $761 million an undisclosed portion of an interest in Biogen Idec’s Tecfidera (formerly BG-12) for MS held by former shareholders of Fumapharm. 


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