Sunday, May 15, 2011

Elan move makes it a sitting duck for big boys --

ELAN'S move to merge its drug technologies business with US firm Alkermes finally allows the Irish company to shed most of its debt load and leaves it as a pure neuroscience play.

Will this entice Johnson and Johnson, which already owns 50.1 per cent of Elan's Alzheimer's unit, to launch a bid for the Irish company?

On Monday, Elan announced it was selling its drug delivery unit to Alkermes in a cash and shares deal worth $960m (€680m). It is receiving $500m in cash and a 25 per cent stake in Alkermes, which will reregister as an Irish company. At the current share price, the Alkermes shareholding has a value of about $460m.

Elan had total borrowings of $1.27bn at the end of March and cash balances of just under $500m to leave it with net debts of about $770m. The money received from the Alkermes deal will slash the company's net debt to just $270m; while an eventual sale of the Alkermes stake could wipe it out altogether. Any lingering doubts about Elan's financial stability have been put to bed.

By offloading its legacy drug delivery businesses, Elan is now a pure neuroscience play with a range of treatments for such illnesses as multiple sclerosis, Alzheimer's and Parkinson's disease.

As the population of the developed world ages this is where the action is for the pharmaceutical industry. Last week's deal suddenly makes Elan look a lot more attractive to the majors.

This increased attractiveness to possible suitors rather than the virtual elimination of its debt load is the main reason the Elan share price closed at €5.88 on Friday, up almost 8 per cent on the week.

Even at that price, Elan is valued at less than €3.5bn. With virtually no debt and an attractive drug portfolio, Elan is a sitting duck for one of the big boys.

Posted via email from Jack's posterous

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