Elan to Buy Back $1 Billion of Stock After Tysabri Sale

Elan Corp. plans to buy back $1 billion of stock, equal to 16 percent of the company’s market value, after selling its stake in the Tysabri multiple sclerosis drug to Biogen Idec Inc.

Elan will announce “a number of strategic transactions” to be made with some of the proceeds when the Tysabri sale closes or thereafter, the Dublin-based company said in a statement today. Elan also will refinance its $600 million of debt after the $3.25 billion sale of Tysabri closes, it said.

The stock repurchase may assuage some investors who were skeptical when the deal was announced Feb. 6 of Elan’s plan to make acquisitions with some of the proceeds. Elan’s American depositary receipts fell the most in almost seven months that day. The company said at the time it would return some proceeds to shareholders, without giving details.

“They’ve now put some numbers around that,” said Adrian Howd, an analyst at Berenberg Bank in London who recommends buying Elan shares. “And it looks as if the timing of the use of the other proceeds, in terms of investments in pipeline and new product assets, is more progressed than some had thought.”

Elan’s American depositary receipts rose 3 percent to $10.60 at the close in New York. The ADRs have dropped 11 percent in the past year, compared with an 18 percent return for the Bloomberg Europe Pharmaceutical Index.

Further Clarity

“Understandably, many market participants are looking forward to further clarity around how we intend to deploy the significant upfront payment we will be receiving,” Elan Chief Executive Officer Kelly Martin said in the statement. “We have been making significant progress in this regard and are prepared to move expeditiously, upon close, on the redeployment of capital.”

Under the agreement, Weston, Massachusetts-based Biogen will hold all rights to Tysabri, and Elan in return will receive $3.25 billion in cash at closing, on which it will pay little or no tax. Biogen also will pay royalties to Elan on sales of Tysabri. The companies previously shared profits equally from the drug, which generated $1.6 billion in revenue in 2012.

The transaction leaves Elan with not much in the way of operations. The company last year spun off its early-stage drug research in a company called Prothena Corp., and in 2011 sold its Elan Drug Technologies unit to Alkermes Plc.

Project Stake

Elan has a stake in a research project by Johnson & Johnson and Pfizer Inc. into treatments for Alzheimer’s disease, but the most advanced product failed in a clinical trial last year. Elan also has a drug, ELND005, in clinical trials for agitation or aggression in Alzheimer’s patients, and for bipolar disorder.

In announcing the Tysabri deal, Martin said the company had already been reviewing possible assets to buy with the proceeds. The company benefits from the low Irish corporate tax rate and has more than $1.5 billion in accumulated losses that can be used as deduction on future income.

“We are enthusiastic about the opportunities that exist and we expect to be in a position to announce a number of strategic transactions upon or following the close,” Elan said in today’s statement.

The company reiterated it expects the deal to close by the end of the second quarter.