Elan loses shareholder support but Royalty bid may also perish

Elan shareholders decisively rejected a major investment programme proposed by the company at a special meeting in Dublin today.

However, investors narrowly approved one of the four resolutions in a move which, pending a court challenge, will block Royalty Pharma in its efforts to acquire the business for up to $8 billion.

The outcome effectively leaves the two sides in a stalemate. Elan, which last Friday put itself up for sale, has lost shareholder support for its business plan; but Royalty Pharma may find itself shut out of any sale process.

Only a plan to return a further $200 million to shareholders by way of a share buyback was accepted by investors – and even then only by a wafer-thin majority, with 50.12 per cent of share voted in support of the scheme.

Shareholders holding between 71 and 74 per cent of the company’s stock voted on each of the resolutions.

The proposal to invest $1 billion in US group Theravance Therapeutics in return for a 21 per cent of future royalties on four respiratory drugs that the business is developing with GlaxoSmithKline was rejected by 72.4 per cent of those shareholders voting.

A second acquisition – of Austrian privately-owned specialty pharma group AOP Pharma, which is focusing on emerging economies – was thrown out by 77 per cent of the votes cast, the strongest opposition to any of the measures.

A proposal to spin off the company's last remaining drug development programme, ELND-005, into a privately held Dublin group, Speranza Therapeutics, backed by $70 million of Elan funds, was opposed by almost 57 per cent of the shares voted.

The position for Royalty Pharma is that unless it succeeds in a court challenge against a ruling by the Irish Takeover Panel it will be forced to "lapse" or withdraw its offer. It had stipulated that its offer was dependent on Elan shareholders rejecting all four measures.

If its offer is lapsed, it might not be allowed to bid again for the company for at least 12 months. That case comes before the High Court on Wednesday. However, Elan has said it would invite Royalty to make an offer for the company as part of the sale process.

Ahead of today's meeting, Royalty Pharma chairman Rory Riggs wrote an open letter to the Elan board.

In it, he said he was “disappointed” that Elan’s advisers had rejected efforts to engage over the weekend on a potential negotiated transaction, structured as a scheme of arrangement.

“Time is short. We believe that our offer is the best alternative for Elan’s shareholders now and will remain the best alternative upon completion of Elan’s sale process,” he said.

Royalty is currently offering $13 in cash per share as well as a contingent value right of up to $2.50 a share depending on future royalty income form multiple sclerosis drug meeting some demanding targets.

Even if the High Court allows the challenge to the Irish Takeover Panel, shareholders have only until Monday next to decide whether to accept the Royalty bid, which requires support from 50 per cent plus one of the shares.