Elan shareholders mull the unravelling of a business
How the Irish biotech firm got to this point and how the EGM may play out
Elan chief executive Kelly Martin: the firm faces a critical moment in its volatile history with tomorrow’s EGM.
Irish biotech group Elan has been through many critical moments in its volatile history. Tomorrow, shareholders gather for an extraordinary general meeting that increasingly seems likely to mark the beginning of the end for Elan as an independent entity.
Q. How has Elan got to this point?
A. Back in February, Elan sold its share of the blockbuster multiple sclerosis drug Tysabri, which it had discovered, to its US partner Biogen, for $3.25 billion plus a significant share of future royalties.
Shortly afterwards, Royalty Pharma, a Dublin-based fund that acquires royalty rights to patented drugs announced its interest in acquiring Elan.
Having initially told shareholders that it would take some time to decide on any payback to shareholders from the Biogen deal, and to announce plans for investing the rest of the cash, Elan then announced a major $1 billion share buyback via a Dutch auction. It also announced plans to channel 20 per cent per cent of future royalty income from Tysabri back to shareholders in dividends and purchase the $600 million outstanding debt in the company held by bondholders.
The share buyback was approved overwhelmingly at an extraordinary general meeting on April 12th, with most of it eventually taken up by Johnson & Johnson selling down its 18 per cent stake in Elan.
Three days later, Royalty Pharma submitted a formal offer for the business.
Q. So how does this get us to tomorrow’s meeting?
A. A month after the initial Royalty offer, Elan embarked on a spending spree. In the space of a week, it announced that it would spend:
l $1 billion acquiring a portion of the royalties of four respiratory drugs that US company Theravance Therapeutics is developing with GlaxoSmithKline, with 20 per cent of those royalties passing to shareholders along with the Tysabri dividend;
l €263.5million in cash and shares for specialty pharma business AOP Orphan, rising possibly to €533.5 million depending on pipeline development;
l $40 million for a 48 per cent stake in Dubai-based emerging economy focused specialty pharma business Newbridge, with an option to purchase the remaining stake in Newbridge by 2015 for $244 million;
l $70 million into the spin-out of its last remaining development programme ELND-005 to privately-held Speranza Therapeutics, in which it will have an 18 per cent stake.
l $200 million into a new share buyback programme.
l $800 million in a new bond issue to raise funds on the debt markets repayable in 2021. This rose subsequently to $850 million.
The acquisitions require approval at an extraordinary general meeting and the fundraising is dependent on those deals progressing.
Q. And what’s been happening in the meantime with the Royalty offer?
A. Elan rejected the Royalty offer back on April 22nd. Royalty has not given up however, raising its bid from the original $11.25 a share to $12.50 a share on May 20th and $13 a share (plus a “contingent value right” of up to $2.50 a share – this means they will pay up to a further $2.50 a share if sales of Tysabri rise towards the upper limit of Elan’s suggested scenario) on June 7th.