Elan Investors Approve Buyback to Force Royalty Bid End

Elan Corp. shareholders approved a share-repurchase program, a vote that Elan says will force Royalty Pharma to end its unsolicited $6.7 billion takeover bid.

Investors voted against three other transactions including an investment in Theravance Inc.’s royalties at their meeting in Dublin, where both Elan and Royalty Pharma are based, Elan said in a statement today. Royalty Pharma’s offer has been contingent on investors rejecting all transactions proposed by Elan management, according to a ruling by the Irish takeover panel.

The vote may not end Royalty Pharma’s pursuit. Elan said last week it will invite Royalty Pharma to participate in a formal sale process with other potential suitors. Royalty Pharma won’t say whether it will enter the sale process until after a court hearing scheduled for June 19 in Dublin to review the takeover panel’s ruling, said Valerie Kvita, a spokeswoman for the company at Maitland in London.

“Elan’s board threw four punches at Royalty,” said Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor, in an e-mailed statement. “One landed and sent Royalty back to its corner.”

A revised ruling from the takeover panel could enable Royalty to proceed with its current offer of $13 in cash for each American depositary receipt, plus $2.50 if certain sales and development goals are met. The ADRs fell 1.2 percent to $13.49 in New York.

No Assurance

“Royalty Pharma will update Elan stockholders in due course as to the outcome of the proceedings,” the company said in a statement today.

There can be no assurance that any sale process will be fair and realistic, Royalty Pharma CEO Pablo Legorreta said in a statement on June 14.

“I don’t think anybody knows what to make of all this,” said Owen Dany, 82, who has held Elan shares for at least 10 years. “The whole thing has been clouded in mystery and half-truths.”

Dany said he arrived late to the meeting because of traffic due to Michelle Obama’s visit to the city and didn’t get to vote. Still, he didn’t know which way he would have voted. “I came to see if there was any fraudulence,” he said.

Mystified Investors

Harry Toher, 66, who has held Elan shares for 25 years, was as mystified as Dany.

The 88-page shareholder circular “was almost incomprehensible,” Toher said over coffee with stem ginger biscuits provided at the meeting. “It’s so massive you need a wheelbarrow to carry it around.”

Elan shareholders voted against a $1 billion investment in 21 percent of Theravance’s royalties, a $340 million takeover of Vienna-based AOP Orphan Pharmaceuticals AG, and the sale of an experimental drug called ELND005 for Alzheimer’s disease.

Legorreta pioneered the drug-royalty business in 1996 with the founding of Royalty Pharma, which now has $1.4 billion in revenue and a 96 percent profit margin, according to company documents. His portfolio contains 38 approved and marketed pharmaceutical products, mostly market-leading drugs for critical care and life-threatening diseases.

Acquiring Elan would give Royalty Pharma access to royalties for Tysabri, an intravenous infusion discovered by Elan for multiple sclerosis. Biogen Idec Inc. of Weston, Massachusetts, agreed to buy Elan’s stake in the drug for $3.25 billion in cash plus future royalties on Feb. 6.

Tysabri Royalties

Biogen is also testing Tysabri in secondary-progressive MS, with late-stage clinical trial results expected in 2015. Sales of the drug may reach $2.03 billion by 2016, according to the average of 12 analyst estimates compiled by Bloomberg.

Tysabri would expand Royalty Pharma’s investment in MS treatments. The company has already bought into another MS drug in pill form, Tecfidera, which was approved in the U.S. in March. Many patients will still opt for Tysabri, which remains the most effective treatment for the condition, as shown by clinical trial results.

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.

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