Shareholders support Elan buyback programme

Irish drugmaker Elan got strong approval from shareholders for a $1 billion (€766,000) share buyback as it seeks to keep them on side and stave off a takeover approach from US investment firm Royalty Pharma.

The buyback, priced between $11.25 and $13.00 per share, was backed by 99.2 per cent of shareholders at a special meeting this morning.

It is part of plans to return cash to investors after the $3.2 billion sale of Elan's interest in multiple sclerosis drug Tysabri.

It comes as US investment firm Royalty Pharma considers sweetening its $6.6 billion offer for Irish drugmaker Elan by paying Elan shareholders more if the multiple sclerosis drug Tysabri hits certain sales milestones, two people familiar with the matter said yesterday.

Royalty made its indicative approach, worth $11 per Elan share, in February, hoping to add rights to royalty payments for Tysabri worth hundreds of millions of dollars.

Elan sold its 50 per cent stake in Tysabri to partner Biogen Idec in April but continues to receive royalty payments on sales of the drug.

Elan has rejected Royalty Pharma's proposal, calling it a "highly conditional indication of interest." An Irish takeover panel gave Royalty Pharma until May 10th to make a firm offer.

Now, Royalty Pharma is considering a formal offer at a slight premium to where it is trading now along with a contingent value right (CVR), whose value will depend on Tysabri sales, said the sources, who asked not to be named because the conversations were private. Elan's shares trading on the New York Stock Exchange closed yesterday at $12.00 a share.

Royalty Pharma is "currently considering all our options with regards to Elan," a spokesman for the company said, adding that the firm does not confirm or deny market rumours. A spokesman for Elan declined to comment.

Under the Biogen deal, Elan's royalty payments will be 12 per cent of Tysabri sales in the first year, 18 per cent after that, and 25 per cent when annual sales rise above $2 billion. Sales of the drug rose 8 per cent to $1.63 billion in 2012.

With a CVR, Royalty Pharma could offer Elan shareholders payouts if Tysabri passed certain sales milestones, according to the sources.

"It would allow Elan shareholders to gain more upside," one of the sources said.

Elan, which is determined to reinvent itself by using the cash from the Biogen deal in a series of acquisitions, has said it will give shareholders 20 per cent of all future royalties from Tysabri.

Royalty Pharma would not be the first firm in the pharmaceutical space to use a CVR to seal a deal. In 2011, French drugmaker Sanofi finalized its long-sought deal for Genzyme in 2011 with a sweetened $20.1 billion cash offer plus CVR payments tied to the success of the US biotech group's drugs.

Reuters