Battle for Elan intensifies as Royalty Pharma raises bid to $6.7 bn

The hostile takeover battle for Irish neuroscience-focused biotechnology company Elan Corp intensified yesterday after Royalty Pharma increased its offer by 5 per cent to $6.7 billion, its third increase in four months.

Royalty Pharma, which buys royalty streams of patented drugs, sweetened its offer after its earlier bid was accepted by only 7.7 per cent of Elan's shareholders.

With an eye on Elan's lucrative royalties from the multiple sclerosis drug Tysabri, New York-based Royalty Pharma has now raised its offer from $12.50 a share to $13 per share and added a contingent value right worth up to $2.50 per share if Tysabri hits certain sales milestones, taking the deal value to a potential $8 billion.

Royalty said the CVR clause would come into effect if Tysabri owner Biogen Idec is able to get approval for using the drug for treatment in secondary progressive MS before end 2017.

But Royalty Pharma's offer is  contingent on Elan shareholders voting against the $-billion Theravance acquisition and two smaller buyouts of privately-owned drug companies, and a £200-million share buyback programme that Elan has proposed.

Elan's board yesterday said that it would look into Royalty Pharma's revised offer "in line with its obligations under Irish takeover law," and advised shareholders to take no action on the bid in the meantime.

The bitter takeover battle began in late February soon after Elan announced that it had sold its interests in its multiple sclerosis treatment drug Tysabri to its US partner Biogen Idec for $3.25 billion plus multi-tiered future royalties on sales of the drug. (See: Biogen Idec to pay Elan Corp $3.25 bn plus for full rights of multiple sclerosis drug Tysabri)

The deal will not only give Royalty Pharma $2.25 billion from the sale of its drug Tysabri to Biogen and continued cash flow from the multi-tiered royalties it will receive in the future from Biogen.

According to the terms of the Tyasbri deal, Elan will receive a royalty of 12 per cent of Tysabri's global net sales for the first 12 months, and then 18 per cent on up to $2 billion of global net sales and 25 per cent on any sales over that amount.

Elan has since rejected two bids from Royalty Pharma saying that it undervalued the company, and started using the $3.25 billion it received from the Tyasbri sale for buying back shares worth $1 billion and offering to pay $1 billion to US-based biotech company Theravance for 21-per cent of future royalties on four of its experimental respiratory medicines developed in partnership with GlaxoSmithKline.

Elan also proposed acquiring two small rare disease drugmakers for $380 million, selling one of its drugs in development, buying back $200 million in shares, and issuing $800 million of debt.

Elan shareholders are scheduled to vote on the deals, but Elan stopped Royalty Pharma  from closing its $12.50 a share tender offer by obtaining a temporary restraining order,  while the Irish Takeover Panel ruled that if Elan shareholders backed the proposed share buyback and other deals, Royalty Pharma would have to walk away from the transaction.

Founded in 1996, Royalty Pharma holds rights 37 approved and marketed pharmaceutical products, including Johnson & Johnson's Remicade, Merck's Januvia, Sloan-Kettering Cancer Center's US royalty interest in Amgen's Neupogen drug and Gilead's Atripla.

The company had sales $1.39 billion last year.