Royalty Pharma Targets Elan

Royalty Pharma has proposed acquiring the Irish drugmaker Elan for $6.6 billion. The offer comes in the wake of Elan’s announcement last month that it will sell its stake in the multiple sclerosis drug Tysabri to its partner, Biogen Idec, for $3.25 billion plus the promise of future royalty payments.

Elan has no current pharmaceutical product.

Elan responded by calling Royalty’s proposal “highly opportunistic” and contending that shareholders have not had time to assess the benefits of the Tysabri sale. The company also stated that it is evaluating investments in new drug assets.

Royalty Pharma has made a business of acquiring pharmaceutical royalty interests. The New York City-based company claims its offer gives Elan shareholders the choice of a sale reflecting Elan’s fair value or remaining invested in a company with an uncertain future. Good assets in the pharmaceutical industry are in short supply, making Elan’s strategy of acquiring or in-licensing new drugs risky and expensive, Royalty argues.

The Irish drug firm would appear to be an ideal target for Royalty after a tumultuous three years in which Elan has gradually divested all its assets. Elan sold its drug formulation business to Alkermes in 2011 and, after the failure of its Alzheimer’s drug in clinical trials last year, spun off its drug discovery operation as a separate company, Neotope Biosciences. Elan’s most recent move was to announce a $1 billion stock buyback.

Steven Silver, an equity analyst at Standard & Poor’s, says the offer from Royalty is not surprising, given Elan’s divestment of assets, the amount of money and future royalties it will receive in the Tysabri deal, and the question of how well the firm will be able to invest it. Nor is Elan’s response a surprise. “That said, if the offer comes back higher or hostile,” Silver says, “Elan’s shareholders may have an interest in cashing out.”