IRISH PHARMA group Elan has announced plans to spin off its drug development business into a separate listed entity. Elan will retain control of its blockbuster multiple sclerosis drug Tysabri, while the new company, Neotope Biosciences, will focus on the development of new drugs.

Existing shareholders in Elan will receive shares in the new company, which will be floated on a US stock exchange. The precise allocation has yet to be determined.

Chief executive Kelly Martin said Elan would commit $120 -$130 million in capital to the new company, “more than enough” to see it through its first 30 months. He said some of its drugs are at a late stage of development and “there are plenty of people with enormous funds interested in this space”. Neotope, which will be headed by Elan veterans Lars Ekman as chairman and Dale Schenk as chief executive, is incorporated in Dublin but will operate largely out of California. It will, in Mr Martin’s words, hold “all our key science” and has the potential to deliver three new drugs to clinical trial stage by 2015.

The announcement comes days after the failure of the company’s Alzheimer’s disease drug bapineuzumab in clinical trials, although Mr Martin insisted the two events were not related. He said the move was a logical step, “as it provides shareholders with the ability to delineate risk, timelines and business characteristics to their own specific investment objectives”.

“We do not have the engine from a profit-and-loss point of view that will give a return [to shareholders] in the short term while funding [development] for the long term,” Mr Martin said.

Funding development was possible only by dilution of holdings or tapping earnings, he said, and “it is time to give shareholders a return in the short to medium term”.

The rump Elan business would become “immediately profitable” with expanding margins, the company said. Mr Martin said earnings before interest, tax, depreciation and amortisation would be about $400 million next year following the spin-off of Neotope, with net income of more than $250 million, or about 40 US cents a share.

Elan said it was targeting earnings of $1 a share by 2015, almost all of it coming from expanding sales of Tysabri, for which it expects to extend patent protection to 2020. Operating expenses are projected to fall from an estimated $420-$440 million this year to $300 million in 2013.

Mr Martin said the generation of profits would allow the company to utilise more than $4 billion accumulated in restructurings over the past decade. This would benefit shareholders, he said, by way of debt repurchase, share buybacks, dividends or some combination of all three. Apart from Tysabri, Elan will retain neuropsychiatric therapy candidate ELND005, which may look at bipolar disorder, and its interest in Janssen AI, the joint venture in the bapineuzumab programme.

The company said it will have a stake of 14-18 per cent in Neotope.

The splitwill require approval from shareholders and holders of the group’s debt of about $600 million. Elan shares jumped more than 5 per cent on the news.