(ELN) Elan Provides Strategic Update

Elan Corporation (ELN) recently provided an update on its strategic plans for the future. The company plans several acquisitions and has other strategic initiatives lined up for further advancement.

Elan is set to acquire privately held AOP Orphan Pharmaceuticals (“AOP”), for an upfront payment of €263.5 million (cash of €175.7 million and Elan ordinary shares of €87.8 million) plus regulatory milestone payments of up to €270 million.

AOP focuses on developing innovative drugs for orphan indications in areas like hematology & oncology, cardiology & pulmonology, neurology, and metabolic disorders. AOP currently has four late-stage candidates in its portfolio. In 2012, AOP recorded revenues of around €59 million (approximately $76 million).

Additionally, Elan intends to buy 48% shares of Newbridge Pharmaceuticals, another privately held company, for $40 million. Elan also has the option to buy the remaining stake in Newbridge Pharma for $244 million by 2015.

Newbridge Pharma focuses on in-licensing deals, acquisitions, registering and commercializing approved products (pharmaceuticals and biologics) in areas like oncology, immunology, metabolic disorders, gastrointestinal and central nervous system.

Apart from acquisitions, Elan also has plans to divest its pipeline candidate, ELND005, to an independent company, Speranza Therapeutics. Speranza will be responsible for the future development of the candidate. ELND005 is currently under development for the treatment of agitation/aggression in Alzheimer’s disease, and Downs Syndrome.

Elan will be making an upfront payment of $70 million to Speranza for an 18% minority equity position. Speranza is also expected to receive up to $8 million in future. Additionally Speranza will receive royalties in major markets along with additional milestones, and will retain commercial rights in certain areas.

The ELND005 divestiture will help the company cut down operating expenses related to the development of the candidate. The company expects to cut its operating expenses guidance of $170?$190 million by around $35 million to $45 million.

We note that Elan recently inked a deal with Theravance Inc. (THRX) to purchase a participation interest in potential future royalty payments for a one-time cash payment of $1.0 billion. Elan is expected to receive a 21% participation interest in potential future royalty payments that Theravance would likely to receive from GlaxoSmithKline (GSK) from four respiratory programs.

Moreover, the company announced a debt offering of $800 million to optimize its capital structure and maintain its strategic flexibility and significant cash balance. Elan also announced a $200 million share repurchase program.

The transactions will go through upon approval from Elan’s shareholders after the company’s Extraordinary General Meeting in June this year.

Meanwhile, Royalty Pharma recently raised its offer for Elan to $12.50 per share in cash from the previous offer of $11.25 per share. Royalty Pharma’s raised offer however does not include the $1.00 per share net cash right that was there in its previous offer. Elan’s Board will assess Royalty Pharma’s offer and will advise its shareholders accordingly.

We believe that the ELND005 divestiture is encouraging. The company will be able to reduce its operating expenses to some extent. However, we have very low visibility on the products that will be added to Elan’s portfolio as a result of the acquisitions.

Elan presently carries a Zacks Rank #2 (Buy). Jazz Pharmaceuticals Public Limited Company (JAZZ) currently looks better positioned with a Zacks Rank #1 (Strong Buy).
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