Royalty Pharma Makes $6.5 Billion Offer for Elan Corp.

Andrew Klips  |

Royalty Management LLC, a privately held NYC-based pharmaceutical investment firm known as “Royalty Pharma,” disclosed Monday that it met with Elan Corporation (ELN) last Wednesday to discuss buying the Dublin, Ireland-based biotech for about $6.5 billion in cash. The informal offer equates to $11 per share for Elan, a 3.8 percent premium to Friday’s closing price of $10.60.

Elan has not commented on the proposal and Royalty Pharma said in a statement today that it “has been unsuccessful in its efforts to engage with Elan” since making the offer.

Royalty Pharma has a portfolio of royalty interests in 37 approved and marketed products, including Abbott Laboratories’ (ABT) Humira®, Johnson and Johnson's (JNJ) Remicade®, Merck & Co.'s (MRK) Januvia® and Gilead Sciences’ (GILD) Atripla®, Truvada® and Emtriva®, to name just a few.

The proposed takeover news comes after Elan saying on Friday that had restructured its Tysabri collaboration with Biogen Idec Inc. (BIIB) to end the 50/50 agreement and take a $3.25 billion payment and double digit tiered royalties for the life of Tysabri, a drug for multiple sclerosis. Elan told shareholders that it intended to redeploy the capital from the sale of its biggest asset by repurchasing $1 billion of its stock, refinancing $600 million in debt focusing on some new acquisitions.

Royalty Pharma said that it was “surprised” that Elan didn’t mention its offer when Elan made the announcement outlining its new plans on Friday.

Tysabri is not only Elan’s biggest asset; it is basically the company’s only revenue stream. In 2012, Tysabri generated about $1.6 billion in sales. Selling it to pursue drugs either on the market or in development drew immediate skepticism from analysts. The company also has a stake in a collaborative development project for an Alzheimer’s disease drug with Johnson & Johnson (JNJ). However, bapineuzumab, the furthest advanced drug in the project, failed in 2012 for the second time in four phase III clinical trials, leading to J&J discontinuing its efforts and Elan writing down to zero its value in the venture.

Royalty Pharma said Monday that it “believes that the Proposal offers Elan Shareholders an attractive financial alternative that will allow them to realize value for their Elan Stock in cash immediately and eliminate the execution risk associated with identifying, acquiring, integrating and growing attractive assets in the context of a highly competitive strategic landscape.”

For shareholders of Elan, it is going to be a matter of weighing the risk/reward potential of Elan going through a successful restructuring versus definitive value today in the Royalty Pharma offer.
In morning trading, shares of ELN gapped ahead by about 7 percent to open at $11.40 and are holding in a tight trading range. Even with the share appreciation in the past two days, shares are down about 10 percent in the past 52 weeks and have traded as high at $15.27 last March and as low as $9.37 earlier this month.

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