Elan strikes more deals to repel Royalty bid

DUBLIN Mon May 20, 2013 10:24am BST

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DUBLIN (Reuters) - Elan announced its second major drug deal inside a week on Monday and said it would buy back more shares as it continues to bat against a $5.7 billion (3.7 billion pounds) takeover bid from U.S. investor Royalty Pharma.

Having rejected the Royalty bid, the Irish drug firm has been trying to convince shareholders to do the same by returning cash and going on a spending spree that began with a $1 billion drug royalties deal of its own just a week ago.

On Monday Elan said it has now also agreed to buy two private drug firms, spin off its one experimental drug as a private company and buy back more shares to give a firmer idea of how the company will be reconfigured as shareholders weigh up the takeover bid.

Elan made its second and third purchases on Monday, buying Austrian rare drug specialist AOP Orphan for 263.5 million euros ($337 million) and paying $40 million for a 48 percent stake in Dubai-based sales and marketing firm Newbridge Pharmaceuticals.

It will still have $1.2 billion of cash left to spend if shareholders approve the acquisitions, and plans to announce more deals in the second half of the year, chief executive Kelly Martin said on Monday.

The deal with AOP Orphan, which has annual revenues of over 50 million euros, hands Elan a number of mainly blood-related and oncology-focused drugs and experimental treatments on top of its own existing and newly purchased royalty streams.

"The timing of this has nothing to do with the Royalty offer itself but it's being communicated this way because this allows shareholders a choice," Martin told Reuters.

"(Do) they want to sell their shares to Royalty at a discount or do they want to continue to be invested in an entity that is creating a portfolio of interesting and different assets?"

AOP, 100-percent owned by former Glaxo-Wellcome executive Rudolf Widman, marks Elan's first step into the rare or 'orphan' drug market, a niche area where a drug is developed to specifically treat a rare medical condition and therefore does not promise the high-volume demand of blockbuster drugs but can merit higher pricing.

Together with the stake in Newbridge, run by ex-Wyeth Inc Middle East chief Joe Henein, the deals will also move Elan's focus to eastern Europe, Africa and the Middle East, where both companies produce and sell drugs.

UNIQUE OFFERING

New York-based Royalty, attracted by the lucrative revenues from Elan's interest in blockbuster multiple sclerosis drug Tysabri, submitted its reduced $11.25 per share bid last month. On Monday, Martin said the bid was simply a "nuisance".

Elan shares, up more than 10 percent since Royalty's first approach in February, closed at $11.67 in New York on Friday. The shares were up 1 percent at 8.97 euros ($11.50) in the Dublin market by 0905 GMT on Monday.

Elan sold its 50 percent interest in Tysabri to U.S. partner Biogen Idec in February for $3.25 billion plus royalties of up to 25 percent, and soon after rewarded investors with a $1 billion share buyback and slice of the Tysabri rights.

It further sweetened its appeal to shareholders on Monday, saying it would repurchase another $200 million of shares. It also plans to issue $800 million of debt to fund future deals.

The Royalty bid looks like undervaluing the company and shareholders will now be able to assess the price properly in comparison with Elan management's own strategy for the future, said Adrian Howd, analyst at Berenberg Bank.

"You certainly know what you're getting now and there's a decent blend of risk and reward. It's a fairly unique offering - a business that has royalty streams, low tax, is infrastructure light with exposure to emerging markets and Orphan diseases."

Elan added that it is to spin off its remaining experimental drug, Alzheimer's treatment ELND-005 as a private company to eliminate operating expenses, selling a majority stake to unspecified buyers but taking an 18 percent stake itself for $70 million.

The share buyback and package of deals, including last week's purchase of 21 percent of the royalties that U.S. company Theravance receives from GlaxoSmithKline (GSK), must be approved at a special shareholder meeting on June 17.

($1=0.7798 euros)

(Editing by Richard Pullin and Greg Mahlich)

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