Elan execs ready fallback plan as Royalty attacks 'jumble' of deals

Elan CEO Kelly Martin

The sparring between Elan ($ELN) and Royalty Pharma over a sweetened buyout bid is going into late rounds, with Royalty swinging away at Elan's recent string of deals in an effort to spur a shareholder revolt. But if investors' last word on the subject is that Elan's management made some bad decisions on how to spend its $3.25 billion Tysabri windfall, the CEO of Elan says there's still a fallback position to retreat to.

"If the shareholders have a different opinion, I think what you will see is Elan immediately announce Plan B," said CEO Kelly Martin today, according to Reuters. Martin noted that there were other opinions in particular about its Theravance deal.

On Wednesday Royalty Pharma CEO Pablo Legorreta blasted Elan's string of deals, particularly its $1 billion bid to buy a sliver of the royalties that could be earned by Theravance's ($THRX) Breo--partnered with GlaxoSmithKline ($GSK)--and other experimental COPD drugs as well as the AOP Orphan Pharmaceuticals buyout.

Elan struck a deal to buy AOP for $342.5 million in cash and stock with up to $351 million in promised milestones. And Royalty wants Elan's shareholders to dump the deals at a general session to be held June 17. 

"The Elan Board has embarked on a 'strategy' of pursuing a frenetic jumble of value destructive acquisitions, dispositions, minority investments, share repurchases, share issuances, debt redemptions and debt issuances in what we consider an obvious attempt to fend off Royalty Pharma's increased offer," Legorreta said in a statement. If either the Theravance or the AOP deals are endorsed on June 17, Legorreta threatened, then Royalty will walk away from its $12.50 per share offer.

A number of analysts have been questioning the Theravance deal, which gives Elan a piece of the biotech's royalties on the COPD portfolio. Bernstein's Ronny Gal did the math and concluded that Elan's deal values Theravance at $6 billion, roughly twice what it was worth the last business day before the deal was announced. For many, the numbers just don't add up. And Martin appears to be sensitive to the fact that shareholders may come to the same conclusion.

- here's the release from Royalty
- here's the Reuters story

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