Royalty Pharma ups Elan offer in battle over shareholder support

Elan CEO Kelly Martin

Royalty Pharma has brought a fully financed offer for Elan ($ELN) to the table, poking a hole in the argument from Elan management about the bidder's ability to make a credible offer. On Monday Royalty rolled out an offer of up to $12 per share, upping the ante from the investment group's previous overture.

Royalty, which specializes in acquiring royalty streams from drug companies, wants to scoop up Elan's large cash surplus and double-digit royalty rights, which the Irish drugmaker gained in letting go of its share of the multiple sclerosis drug Tysabri in a $3.25 billion deal with Biogen Idec ($BIIB). Elan shareholders could cash out quickly with Royalty's buyout offer, while Elan CEO Kelly Martin has pushed forward a strategy that calls for rebuilding the company by spending $3 billion to acquire new drugs and technologies. 

Elan's management has made efforts to keep shareholders happy, principally with a $1 billion share buyback. Last week shareholders overwhelming approved the buyback, which valued shares at $11.25 to $13 per share, Reuters reported. Yet the bigger question is whether shareholders want to back Elan CEO Kelly Martin and his crew to win their proposed bets on new drugs in the neurological and metabolic arena, where many pharma rivals have been hunting for the juiciest assets. In selling off the Tysabri business, Martin has remade his company into an acquisition shell of sorts that some analysts believe is loaded with risk.

Royalty is stoking some of the same concerns with its latest overture to Elan investors. The investment firm previously came out with an $11-per-share offer that was widely expected to grow. Elan's share price was hovering at about $12 per share late this morning, valuing the company at over $7 billion, right in line with Royalty's evaluation.  

"Elan today consists of cash and a royalty on Tysabri," Royalty said in a statement. "Royalty Pharma has over 15 years of experience valuing royalties on pharmaceutical products.  Based on our analysis of Elan's Tysabri royalty and the implied valuation of Elan's economics in Tysabri reflected in Elan's recent transaction with Biogen, we believe that our offer represents a full and fair value for Elan."

Royalty plans to finance the buyout of Elan with its existing resources as well as credit facilities with help from Merrill Lynch, Pierce, Fenner & Smith and J.P. Morgan Securities. And Royalty has made clear that its best offer to Elan shareholders hinges on Elan's board taking swift action in deal talks. We'll see what Elan's next move will be.

- here's the release
- see the Reuters article