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Jul 29, 2013

Perrigo Buying Elan for $8.6B

  • Perrigo will buy Elan for $8.6 billion, in a cash-and-stock deal that unites the U.S. prescription and generic drugmaker and Irish-owned biotech into a combined company with double-digit royalty income from the multiple sclerosis (MS) blockbuster treatment Tysabri® (natalizumab) and Ireland’s low corporate taxes.

    The pending acquisition, announced this morning, has been approved by the boards of both companies and is set to close by year’s end. The deal comes nearly a month after Elan put itself up for sale, and after beating back a hostile takeover attempt by Royalty Pharma, which offered $8 billion for the biotech. Elan shareholders and top executives rejected the Royalty Pharma offers as offering inadequate value for their company.

    “Through this transaction, Perrigo establishes a diversified platform for further international expansion,” Perrigo chairman and CEO Joseph C. Papa said in a statement. “We believe the combination of Perrigo and Elan will create an industry-leading global healthcare company with the balance sheet liquidity and operational structure to accelerate our growth and capitalize on international market opportunities.”

    The combined company “is expected to be called Perrigo Company plc or a variant thereof,” and will be led by Perrigo’s management team, the companies said. Current Perrigo shareholders would own 71% of the combined company, while Elan’s will own the remainder.

    Perrigo will offer $16.50 per share of Elan—$6.25 cash, plus 0.07636 shares of the new company—a 10.5% premium above Elan’s closing ADR stock price Friday of $14.93 on the New York Stock Exchange. Royalty Pharma, by contrast, offered $13 cash per share and a “contingent value right” of an additional $2.50 per share tied to Tysabri achieving sales milestones.

    By incorporating in Ireland, the combined entity will enjoy that country’s corporate tax rate of 12.5%, which the companies expect will contribute to the acquisition saving the companies an anticipated $150 million in annual recurring after-tax annual operating expenses.

    “This transaction underscores the tremendous value of Elan's platform. The new combined company should deliver value, growth, and diversification to shareholders for many years to come,” Elan CEO G. Kelly Martin said in the statement.

    Tysabri, which Elan co-developed with Biogen Idec, racked up $1.6 billion in sales last year, up nearly 8% from $1.5 billion in 2011, with Biogen Idec receiving $1.1 billion of that. But in February, Elan sold its rights to the drug to Biogen Idec for $3.25 billion upfront, in a deal that gave the seller some much-needed cash after months of speculation about its future. That speculation was touched off by last summer’s failure of bapineuzumab, a mild-to-moderate Alzheimer’s disease drug candidate, in a Phase II clinical trial.

    As part of its sale of Tysabri rights to Biogen Idec, Elan now earns a 12% royalty on global net sales of Tysabri—a percentage that will balloon on May 1, 2014, to 18% on annual net sales up to $2 billion, and to 25% on annual net sales above that amount.

    “Further upside exists if Tysabri is approved for secondary progressive MS,” the companies stated. Last year, Elan and Biogen Idec launched the ASCEND Phase IIIb clinical trial to assess Tysabri’s effectiveness for SPMS. As of July 12, the trial was ongoing but not recruiting patients, according to ClinicalTrials.gov.

    Headquartered in Allegan, MI, Perrigo beat out one would-be suitor planning an offer for Elan last week—which Reuters identified as Forest Laboratories—as well as other would-be acquirers reported to include Allergan, Mylan International, and Endo HealthSolutions. 


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