Royalty Pharma, a private entity, recently announced its intention to acquire Elan Corporation, plc (ELN). Royalty Pharma intends to acquire Elan at $11 for every share of Elan and its American Depository Shares (ADS).
Royalty Pharma’s offer of $11 per share represents a premium of 12.6% to the Current Enterprise Value of Elan based on the closing share price of Elan on Feb 15, 2013. The offer also represents a 6.3% premium to Elan’s stock price as of the closing price on Feb 15, 2013.
Moreover, Royalty Pharma’s offer price represents a 12.7% cash premium to the volume weighted average closing share price of the Elan stock on the New York Stock Exchange between Feb 6, 2013 and Feb 15, 2013.
Royalty Pharma’s offer comes close on the heels of the update provided by Elan on its future plans after it announced the restructuring of multiple sclerosis drug Tysabri. Notably, Biogen Idec (BIIB) gained full strategic, commercial and operational control over Tysabri earlier this month. As per the agreement, Elan will be receiving an upfront payment of $3.25 billion from Biogen.
For the first year, Biogen will make royalty payment of 12% on the worldwide net sales of Tysabri (for all indications). After the first year, Elan will receive a royalty of 18% on up to $2 billion of global net sales of Tysabri and 25% thereafter on over $2 billion of global net sales of Tysabri. The transaction is expected to close shortly.
Elan stated that it will invest a portion of its net proceeds of $3.25 billion into multiple business assets. The company also has plans to refinance its outstanding debt. Moreover, the company announced that it will institute a share repurchase program by utilizing $1 billion of the upfront proceeds post the restructuring of Tysabri.
The company recently announced that it will take into consideration any credible proposal from Royalty Pharma or any other party alongside these strategic transactions. We expect investor focus to remain on Royalty Pharma’s offer going forward.
Elan, a biotechnology company, currently carries a Zacks Rank #2 (Buy). Other well placed biotech stocks include Alkermes (ALKS) and United Therapeutics Corporation (UTHR). While Alkermes carries a Zacks #2 Rank, United Therapeutics carries a Zacks Rank #1(Strong Buy).
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