June 7 (Bloomberg) -- Royalty Pharma, an investor in royalty streams from pharmaceuticals, raised its offer to buy Elan Corp. by 5 percent to $6.7 billion, the second increase in its attempt to take over the Irish biotechnology company.
The all-cash offer of $13 per American depositary receipt is higher than a previous bid of $12.50 and compares with the $12.68 closing price on June 6. The new bid potentially values each Elan share at as much as $15.50 if the multiple sclerosis drug Tysabri meets certain sales and development goals, Royalty Pharma said in a statement today. If all three targets are met, Royalty would pay a contingent value right of $2.50 a share, for a total of $8 billion.
Elan Chief Executive Officer Kelly Martin, a former Merrill Lynch & Co. banker, and the rest of Elan’s board are weighing the latest overture after rejecting the two previous bids. Since the approach, Martin has announced transactions including a $1 billion investment in Theravance Inc.’s royalties. Elan shareholders will vote on the proposals on June 17, which will determine whether Dublin-based Royalty will go ahead with its unsolicited offer.
“$13 a share is a game changer; it’s a very, very generous offer,” said Guillaume van Renterghem, an analyst at UBS AG in London, in a telephone interview. “Frankly I doubt very much that shareholders will vote positively for any of the Elan management proposals.”
Elan rose 6 percent to $13.44 at the close in New York.
The contingent value rights are tied to events including regulatory approval for expanded use of Tysabri; the achievement of global sales of $2.6 billion in four consecutive quarters before Dec. 31, 2015; and the achievement of $3.1 billion in sales in four quarters by Dec. 31, 2017, Royalty Pharma said.
The offer isn’t conditional on due diligence, Royalty Pharma said.
“The board of Elan will, as before, in line with its obligations under Irish Takeover law, assess the Royalty Pharma announcement and will advise its shareholders accordingly,” Elan said in a statement today. “In the meantime, Elan shareholders are strongly advised to take no action in relation to the Royalty Pharma offer.”
An acquisition by Royalty would enable Elan shareholders to avoid the risks of Martin’s strategy of reinvesting the $3.25 billion Elan received from Biogen Idec Inc. for divesting its stake in Tysabri, Royalty said. Elan has said it will pay investors dividends directly linked to Tysabri sales as a 20 percent share of the royalty received from Biogen.
“Elan has undertaken what Royalty Pharma considers to be a frenetic jumble of value-destructive” transactions intended to deter Royalty Pharma from pursuing Elan, Royalty Pharma said.
An extraordinary general meeting of Elan’s shareholders is scheduled for June 17 to consider four transactions proposed after Royal Pharma’s takeover bid, including the investment in Theravance’s royalties. Shareholders will also vote on a $340 million takeover of Vienna-based AOP Orphan Pharmaceuticals AG, the spin-out of an experimental drug called ELND005 for Alzheimer’s disease to Speranza Therapeutics and a $200 million share repurchase program.
Royalty Pharma urged Elan shareholders to vote against all four proposals, citing recommendations from proxy advisers Institutional Shareholder Services and Glass Lewis.
JPMorgan Chase & Co., Bank of America Corp. and Groton Partners are advising Royalty Pharma. Elan’s financial advisers include Davy Corporate Finance, Morgan Stanley, Ondra Partners and Citigroup Inc.
Founded in 1996, Royalty Pharma owns royalty interests in 38 approved and marketed pharmaceutical products. For example, in 2004, the firm bought Memorial Sloan-Kettering Cancer Center’s U.S. royalty interest in Amgen Inc.’s Neupogen drug.
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