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March 4, 2013 5:17 pm
Elan, the Irish-based drug company, has moved to counter a $6.6bn takeover bid by pledging to pay a fifth of the royalties on its multiple sclerosis drug Tysabri directly to shareholders, in a dividend that some analysts placed at nearly $70m next year alone.
In an unusual written commitment, chief executive Kelly Martin said the company would hand more than 20 per cent of its royalty income directly to investors twice a year from this autumn, once its divestment of the drug is completed.
He also accelerated the timetable for potential acquisitions following the Tysabri transaction, agreed with its partner Biogen Idec and unveiled last month, saying further details should be provided “in the coming days and weeks”.
His comments come after Royalty Pharma, a private equity group that buys the rights to patented drugs, last week offered $11 a share to buy out Elan, valuing the company’s equity at $6.6bn.
Elan, which had previously not made public the approaches from Royalty, called the proposal “highly opportunistic,” while not issuing a formal rejection of the “conditional” bid. Following the Biogen Idec deal, worth $3.25bn in cash and future royalties, the company said it would offer a one-off $1bn share buyback, refinance debt and seek future acquisitions.
Under the terms of its deal with Biogen Idec, the company will receive 12 per cent royalties on sales of Tysabri in the first year after closing, rising to 18 per cent on sales up to $2bn and 25 per cent on any additional sales above that level. In 2012, sales on the drug were $1.6bn.
Mr Martin made it clear the royalty-linked dividend payout would have no cap. “This dividend structure gives shareholders the right to enjoy unlimited participation in the upside from the Tysabri sales increase which we anticipate for the future,” he said.
Berenberg estimated the Tysabri royalty would trigger dividends to Elan shareholders of $68m in 2014 rising to $175m in 2023. Others have argued Tysabri’s sales will be threatened by newer multiple sclerosis drugs coming on to the market.
Deutsche Bank said in a research note the Elan announcement provided welcome additional clarity on the company’s plans, and the recent rise in the share price implied that investors thought Royalty Pharma would raise its bid. But the investment bank cautioned that “Royalty Pharma’s likely required rates of return will mean revised bids materially above $12/share are unlikely”.
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