Alkermes Gains on Plan to Buy Elan Division for $960 Million

Elan Corp. Chief Executive Officer Kelly Martin
Elan Corp. Chief Executive Officer Kelly Martin. Source: Elan Corp. via Bloomberg

Alkermes Inc., maker of the Vivitrol addiction therapy, agreed to buy Elan Drug Technologies, a unit of Elan Corp. that works with pharmaceutical companies to make products easier to take, in a deal valued at $960 million.

Alkermes Waltham, Massachusetts, will pay the Irish drugmaker $500 million in cash and shares valued at $462 million, the companies said today in a statement. That represents a multiple of about nine times the unit’s earnings before interest, taxes, depreciation and amortization of $104 million. The median multiple of 15 deals in the drug-delivery industry in the last year is 9.41, according to Bloomberg data.

The deal brings together two businesses that aim to improve the way medicines are delivered, such as by grinding particles to make them more easily absorbed. It will help Dublin-based Elan trim debt, Chief Executive Officer Kelly Martin said in the statement, and bring new revenue to Alkermes. The Elan unit had sales of $261 million last year, according to Bloomberg data. Combined revenue for Alkermes and the Elan unit was $450 million in the 12 months ended March 30, according to the statement.

“Both of our companies have deep backgrounds in drug formulation technology and both almost simultaneously have begun to transition to developing our own drugs,” Richard Pops, chief executive officer of Alkermes, said in a telephone interview.

The enlarged company, to be called Alkermes Plc, will focus on drugs for central nervous system disorders and be based in Dublin, according to the statement.

No Crown Jewel

Alkermes gained 72 cents, or 5 percent, to $15.19 at 4 p.m. in Nasdaq Stock Market composite trading, the highest price since Oct. 13. Elan’s American Depositary receipts rose 38 cents, or 4.8 percent, to $8.25, in New York Stock Exchange trading. Each receipt is equal to one ordinary company share.

“It’s a good deal” for Elan, Adrian Howd, an analyst with Berenberg Bank in London, said in an interview today. He recommends buying the shares. The unit “has never been the crown jewel at Elan. This enables them to restructure the business and to focus on the key value drivers.”

Elan had been trying to divest the business for years. The company abandoned a plan to sell it in 2008 when financing dried up amid the global financial crisis. In April last year, it said it might split the unit off to create two separate listed companies. That idea was abandoned the following August because “market conditions” weren’t “conducive to an appropriate valuation.”

Drug Technology

Both companies have developed technology used by drugmakers to improve the way medicines are used by the body. Alkermes makes a long-lasting injection of a schizophrenia therapy called Risperdal Consta which it developed with Johnson & Johnson’s Janssen-Cilag unit. Elan’s long-acting NanoCrystal injection for Xeplion, also a schizophrenia drug developed by Janssen-Cilag, was approved in Europe in March. Elan will hold 25 percent of Alkermes Plc under today’s agreement.

While Alkermes and Elan both lose money today, the new company “will be cash-flow positive from day one” because “we’re merging with the profitable business division of Elan,” Pops said.

The new Alkermes will be able to “ride the wave of growing revenues from drug delivery technologies and apply the cash flows to our own proprietary products,” according to Pops.

Pops will serve as chairman and CEO of the new Alkermes. Shane Cooke, Elan’s executive vice president and head of the drug technology unit, will be president, the companies said in the statement.

Alkermes will finance the deal with a loan of up to $450 million from Morgan Stanley & Co. and HSBC Holdings Plc, according to the statement. Morgan Stanley was Alkermes’s financial adviser and Elan was advised by Citigroup Inc. and Ondra Partners.

The deal will require approval from Alkermes shareholders as well as regulatory authorities and is expected to close in the quarter ending Sept. 30.

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