Elan plans more big transactions in wake of billion-dollar Theravance deal

Recent flurry of deal-making by Elan is said to be for the purpose of 'decisively transforming the company,' but many still think the spending spree is largely to fend off takeover attempt by Royalty Pharma

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DUBLIN—In an effort its executives and board ofdirectors say is "designed to decisively transform and advance the company," ElanCorp. on May 20 proposed two transactions that offer its shareholders whatthe company calls a "highly unique investment and asset proposition."
The pearls Elan is offering its shareholder are toacquire AOP Orphan, a private, orphan disease company headquarteredin Vienna, Austria, and to acquire 48 percent of NewbridgePharmaceuticals, a private company headquartered in Dubai, United ArabEmirates. 
This comes just after an announcement the previousweek that Theravance Inc. and Elan had entered into a proposed royaltyparticipation agreement—at a cost of $1 billion to Elan—wherein Elan willpurchase a participation interest in potential future royalty payments relatedto four respiratory programs partnered with GlaxoSmithKlinePLC: Relvar Ellipta/Breo Ellipta, Anoro Ellipta, MABA (BifunctionalMuscarinic Antagonist-Beta2 Agonist) monotherapy (GSK961081, or MABA '081), andvilanterol (VI) monotherapy.
As Elan says, upon shareholder approval, "thetotality of these [two] strategically driven decisions," in addition to theTheravance royalty participation agreement and a dividend pass-through announced thesame week as the Thervance deal—along with the previously completed transaction in February in which it sold its 50 percent interest in multiple sclerosis treatmentTysabri to BiogenIdec in February for $3.25 billion plus royalty rights—"will form a dynamicand unique business foundation for Elan in the years ahead."
"Our proposed package of transactions is designedto create a balance of risk (science, molecules, regulatory and reimbursement)with the benefit of diversification (therapeutics, geographies, science andoperational constructs) to produce long-term growth in income and value," said KellyMartin, CEO of Elan, in the announcement about the most recent plans. "Our goalis to create a company that achieves distinct and sustainable success in thehealthcare space. We are not constrained by legacy infrastructure norassociated costs. We will operate flexible business constructs that allow forparticipation in various parts of the industry value chain for the directbenefit of our shareholders."
"The resulting ability for effective long-termplanning enables us to generate significant after-tax margin throughadvantageous tax structures," he added. "Lastly, the acceleration andadvancements in science, clinical knowledge and diagnostics across multiplegeographies should continue to generate a multitude of additional opportunitiesfor Elan to consider in the months and years ahead."
AOP Orphan,founded in 1996 and currently employing some 145 people, is focused hematology andoncology, cardiology and pulmonology, neurology and metabolic disorders, andit has four late-stage pipeline programs with a 2014 to 2018 time frame in hematology/oncologyand cardiology/pulmonology indications. The company had 2012 revenues ofapproximately $76 million. Elan would pay $337 million for this acquisition.
Newbridge Pharmaceuticals, which employs some 40people, is focused on the Africa, Middle East and Turkey regions, and its therapeuticareas include oncology, immunology, metabolic disorders, gastrointestinal and centralnervous system indications. Other shareholders include KuwaitLife Sciences Co. and Burrill & Co. Elan would pay $40 million in exchangefor 48 percent of the total fully diluted capitalization of the company and hasthe option to purchase the remaining stake in Newbridge by 2015 for a sum of$244 million.
"AOP Orphan and Newbridge Pharmaceuticals togethercreate a highly unique business platform," said Hans Peter Hasler, Elan's chiefoperating officer. "The geographic markets in which they operate arecharacterized by underlying growth and demand for healthcare products, broadeconomic development and increased patient and caregiver knowledge in diseaseareas such as oncology, cardiovascular/pulmonology, hematology,gastroenterology, neurology and a variety of rare and orphan diseases."
Perhaps not surprisingly, given the attempts by Royalty Pharma lately to attempt a takeover of Elan, Elan also made an announcementon May 20 that shareholders should not act on a revised offer by Royalty Pharmaof $6.4 billion for Elan, which Royalty says it will withdraw if Elanshareholders approve the  transactions that have been announced this month. Royalty,which focuses on acquiring the royalty streams of patented drugs, has assertedthat Elan's efforts at reinvention of the company via these variousacquisitions and debt deals are poorly conceived and hasty.
Although Elan has referred to the Royalty bid as a"nuisance" and says it undervalues the company, and has maintained that thecurrent flurry of transactions isn't an attempt to dissuade Royalty, manymarket-watchers believe that these are defensive transaction designed to winover shareholders and woo them away from Royalty.
In an investor note regarding the Theravanceproposal which, like the other deals, still needs to be approved by shareholder,ZacksInvestment Research wrote, "We believe the agreement is a smart move fromElan. The transaction will enable Elan to receive royalties on a regular basis.The transaction will also diversify Elan's current portfolio. The companyexpects the transaction to be earnings accretive from 2014."
Leerink Swann Research was more reserved as it issued a note about all the recently proposed deals, commenting that Elan's newstrategic transactions "appear obscure to us in their potential to generateshareholder value," but added: "Despite this, we are impressed withmanagement's apparent industry-leading ability to identify and negotiateM&A transactions."

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