Johnson & Johnson cashes out on Elan shares after failed Alzheimer's trials

Johnson & Johnson ($JNJ) has sold 82 million Elan shares ($ELN) for $11.25 per share as part of Elan's $1 billion stock buyback plan, providing J&J's Janssen unit an after-tax gain of $213 million. The "Dutch Auction" price for Elan's buyback has implications for Royalty Pharma's ongoing efforts to acquire the Ireland-based biotech for up to $7.3 billion.

On Monday Royalty upped its offer to acquire Elan for up to $12 per share, with the ultimate offer price varying depending on the price Elan pays for its shares in the Dutch Auction this week. Royalty has formulated its latest offer to essentially match Elan's price in the buyback plan at prices between $11.25 per share and $12 per share. For example, Royalty would acquire Elan for $11.25 per share if Elan pays that amount for shares in the Dutch Auction, which shareholders approved last week to go as high as $13 per share.

Johnson & Johnson gained a major stake in Elan as J&J advanced an amyloid-targeting antibody called bapineuzumab for Alzheimer's in partnership with Pfizer ($PFE). Late-stage studies of bapi failed last year, reducing the likelihood that J&J would seek an acquisition of Elan to solidify its ownership of the drug. Biogen Idec ($BIIB) had also been discussed as a suitor to acquire Elan because the two companies equally shared business from the blockbuster MS drug Tysabri. But the M&A talk concerning Biogen fizzled after the big biotech bought the rest of the Tysabri business that it didn't already control from Elan for $3.25 billion this year.

Royalty Pharma has its eyes on Elan's royalty stream on Tysabri, which Royalty values at $4.4 billion. Without the Tysabri business, Royalty argues, Elan is basically a shell with deep pockets from the Biogen deal and a healthy royalty stream to finance its future. Elan CEO Kelly Martin has proposed a plan to reinvest a portion of the company's cash in acquisitions of neuroscience and inflammation drugs. Royalty argues that Elan investors can either cash out now with its offer or put their faith in Elan's management to invest wisely in new products.

- here's J&J's release

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