After repeatedly laying plans to spin off its drug delivery unit, Elan has struck a deal to sell EDT to Alkermes ($ALKS) in a $960 million buyout pact. The merger will create a greatly expanded drug delivery specialist based in Ireland with 25 marketed products and a $450 million revenue stream that CEO Richard Pops plans to put to use for pipeline projects that can be completed on its own rather than with the collaborators he has always relied on before.
The deal is transformational for both Alkermes as well as Elan. Elan ($ELN) wants to devote itself to therapeutics for the brain and now has enough cash on hand to invest more in its pipeline while paying down debt. Alkermes, which has been the junior partner with Amylin and Eli Lilly on Bydureon, will have the money available to handle development work on its own. The new company will keep the Alkermes name and Pops stays on as chairman and CEO.
"Similar to EDT, which has its origins in complex drug-delivery technology and manufacturing, we've built a company with strong growing revenues now, as does EDT, and by putting the two companies together we'll have the financial strength to fund the development of pipeline products-increasingly for our own account-instead of doing this with pharmaceutical companies as partners," Pops told the Wall Street Journal. "So this is definitely a transformational step for us."
Elan--which will get $500 million in cash and a 25 percent stake in the expanded delivery company--also sees this as an important juncture. It now plans to concentrate more on its drug development work. Elan's shares were buoyed this morning after the merger deal was announced.
"This has been a multi-year process. I would describe this as the final step for Elan in defining itself as a biotech company with a focus on neuroscience," said CEO Kelly Martin.
Martin first tried to spin off EDT in 2008 and then again in 2010 but was thwarted both times by weak market conditions. Last summer analysts were questioning the wisdom of a spinoff, estimating that EDT was worth between $1 billion and $1.3 billion. Some observers said that the pharma company would do better if it waited beyond a year before it did a deal so it could clarify the value of Ampyra and other products.
Berenberg Bank's Adrian Howd, though, says he likes the deal. EDT "has never been the crown jewel at Elan," he tells Bloomberg. "This enables them to restructure the business and to focus on the key value drivers." Bloomberg also notes that Akermes is paying nine times earnings to get the unit, which is slightly lower than the 9.41 times average the business news service has been tracking.
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