Elan in £650m royalty deal to aid bid defence

IRISH drugmaker Elan Corporation has agreed a $1bn (£650m) royalties deal that could soothe concerns about its potentially risky acquisition strategy and fend off a takeover bid from Royalty Pharma.

Elan, battling to keep its independence after rejecting Royalty’s $5.7bn bid last month, is buying 21 per cent of the royalties that US company Theravance receives from GlaxoSmithKline (GSK) for its respiratory drugs.

The Irish company is seeking to diversify from its neurological focus after selling its 50 per cent interest in multiple sclerosis treatment Tysabri to US partner Biogen Idec in February for $3.25bn plus royalty rights.

Royalty Pharma wants to add those rights, worth hundreds of millions of dollars, to its stable of royalty streams and has tried to unnerve Elan shareholders by questioning the firm’s lack of experience in pulling off big deals.

Elan chief executive Kelly Martin denied that yesterday’s deal was designed to frustrate Royalty’s bid, but some analysts said the deal may allay fears among investors that Elan would make high-risk investments in drugs with significant costs attached.

Elan said that it has more deals in the pipeline and that it would give its shareholders a fifth of all royalties from the Theravance deal, matching the 20 per cent dividend they are already set to receive through the royalty stream Elan maintains in Tysabri.

The shareholders, who have also been rewarded through Elan’s $1bn share buyback, have until 31 May to make up their minds on Royalty Pharma’s $11.25-a-share bid. Royalty needs 90 per cent of Elan shareholders to accept the bid.

Yesterday’s deal, part of which will be financed by an imminent bond issue, hands Elan a chunk of Theravance’s interest in four drugs in late-stage development.