Elan is to receive a $100 million (€99 million) cash payment from San Diego-based pharmaceuticals group Ligand for restructuring its agreement with the company regarding Avinza, an oral form of morphine.
In addition to the $100 million payment, Elan will receive $20 million from the sale of 2.2 million Ligand shares to the company at $9.00 per share, above the current market price.
In return, Elan will receive a reduced royalty rate from net sales of Avinza in the US and Canada of 10 per cent, down from a current level of 30 per cent.
The royalty was worth $4.7 million to Elan in the period from Avinza's launch in the second quarter to the end of September.
Elan will also forego its option to negotiate a co-promotion agreement with Ligand for Avinza in the US and Canada. But Elan will continue to manufacture the product at its facility in Gainesville, Georgia.
Analsyts said this was simply a recognition of reality because after its restructuring, Elan would no longer have the capability to launch and promote Avinza.
The restructured agreement will become effective if Ligand is successful in raising sufficient funds to make the cash payment to Elan.
The share sale is not subject to any Ligand financing contingency, however.
Ligand has said it will offer around $135 million in five-year convertible notes to raise the money to pay Elan. If it fails to raise sufficient funds, the existing agreement between the two companies will remain unchanged.
"I am happy enough with the price," said Mr Peter Frawley, analyst with Merrion Stockbrokers. He had pencilled in $150-$180 million for Avinza, against the $120 million raised, but that was for a complete sale.
Instead, Elan will retain royalty rights and will continue to hold 12.2 million Ligand shares. It has agreed to a 180-day lock-up period in respect of 11.8 million of these shares.
Ligand shares sold off on the news but Elan gained eight cents, or 3.6 per cent in Dublin, to €2.30. In New York, the shares closed 4.48 per cent higher at $2.33.
If the agreement with Ligand goes through, Elan will have raised $580 million from asset disposal so far, more than a third of its $1.5 billion target.
