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Biotech rumor mill: Game may not be over for Royalty’ Pharma’s bid for Elan

Posted on 01 July 2013

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In the biotech rumor mill: Sources stating that the game may not be over for Royalty' Pharma's bid for Elan.

Mylan, Allergan, Endo, Forest considering bids-sources.

Partnership with Royalty is possible, but complex.

The game may not yet be over for U.S investment firm Royalty Pharma in its months-long pursuit of Elan Corp, according to biotech rumor mill sources.

The Irish drugmaker earlier this month rejected a hostile bid by Royalty worth up to $8 billion according to the biotech rumor mill.

Instead, it put itself up for sale and is in early discussions with several mid-size drugmakers to find a rival buyer.

Mylan Inc, Allergan Inc, Endo Health Solutions Inc and Forest Laboratories Inc are among pharmaceutical companies that have shown preliminary interest in bidding for Elan, according to several familiar sources in the biotech rumor mill.

While all the companies are primarily interested in Elan for the tax savings that come from being domiciled in Ireland, Elan's lack of drug pipeline and high price tag make it a long shot that any bid will materialize, the sources cautioned.

If no rival offer emerges, Elan's stock could fall back to where it was before Royalty made its first offer in February. Elan's shares in New York, which traded slightly above $10 per share right before Royalty's offer, have risen to around $14 a share on expectations of a takeover.

Royalty, which is not currently participating in the sale process but is nevertheless watching the situation closely, could then get a second shot at buying the company according to the biotech rumor mill.

Representatives from Allergan, Mylan, Forest and Endo declined to comment. Royalty and Elan declined to comment.


When Elan announced on June 14 it was putting itself up for sale, it invited Royalty to participate in the bidding.

Under Irish takeover laws, Royalty is not allowed to submit another hostile bid for Elan for the next 12 months. The only way it can buy Elan is by entering the sales process or if another bidder approaches it about a partnership. So far Royalty Pharma has not agreed to enter the bidding, two sources familiar with Royalty said.

Some Elan shareholders have raised the possibility that a partnership between Royalty Pharma and another bidder could be a good option, albeit a complicated one.

They suggest that one of the industry buyers could acquire Elan and sell a portion of the royalties on the drugmaker's multiple sclerosis drug Tysabri to Royalty Pharma.

With such a deal, Royalty would get what it has wanted all along - the Tysabri royalties. The industry buyer would get a lower tax rate, and Elan would get a better price for the company.

No such discussions have taken place, although Royalty Pharma would be open to a partnership, the sources familiar with the firm said.

Structuring a partnership whereby Royalty would receive a portion of the Tysabri royalties and a separate bidder would get the tax break would be tough to do.

First, under the terms of the sales process, Elan is precluding any bidders from partnering up, meaning that a bidder that wanted to team up with Royalty Pharma would need to renegotiate that restriction with Elan, according to one of the sources with knowledge of the matter.

Regulators have also set up rules to prevent companies from making acquisitions just to lower their tax rates. For the acquirer to take advantage of the 12.5 percent corporate tax rate in Ireland, the newly combined company would to have sufficient business activities in Ireland and the original Elan shareholders would have to own at least 20 percent of shares of the merged company.

Royalty Pharma may still win the day if no rival bids emerge. Elan shareholders then could press Elan to go back to Royalty, or Royalty could enter the bidding at the last minute.


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