Irish Drugmaker Elan to Spin Off Research Arm
Ireland's Elan is to spin off its Neotope drug discovery business platform as a separate public company, making Elan immediately profitable and potentially more appealing as a takeover target.
The decision to split the company comes hard on the heels of the failure of an experimental Alzheimer's drug being developed with Johnson & Johnson and Pfizer, although Chief Executive Kelly Martin said it had been planned for more than a year.
The move fuels speculation that Elan, shorn of its loss-making research arm, will be a more attractive takeover target for U.S. biotech company Biogen, with which it markets the multiple sclerosis drug Tysabri.
Shares in Elan have fallen sharply since the failure of bapineuzumab, one of the most anticipated experimental drugs for Alzheimer's disease, in two late-stage clinical trials.
Some analysts think Biogen could use the opportunity to grab 100% of Tysabri by buying Elan, in a similar way that GlaxoSmithKline recently bought Human Genome Sciences to get full control of lupus drug Benlysta.
Martin declined to comment on Monday on Biogen's potential bid interest but told reporters there were no obstacles to any company launching a takeover offer and none were planned under the new structure.
"What other companies want to do with regard to looking at our assets or any other assets is up to them - we're all public companies," he said. "There are no obstructions that we have put in place or that we seek to put in place."
J&J, however, owns 18% of Elan as a result of the Alzheimer's tie-up, which could complicate any M&A move.
Completion of the spin-off, which is subject to shareholder and bondholder approval, is expected by the end of 2012, with the separate research arm listed on either the New York Stock Exchange or Nasdaq.
Longer Tysabri patent
After the spin-off, Elan expects earnings before interest, tax, depreciation and amortisation (EBITDA) of more than of $400 million in 2013 and $1.00 earnings per share (EPS) by 2015.
In addition to offloading research costs, Elan's EPS will also benefit from the fact that tax will be negligible for a number of years, due to the carry-over of past losses. Martin said Elan would channel cash back to investors by buying back shares or paying dividends or repurchasing debt..
Aiden O'Donnell, an analyst at stockbroker Davy, said the spin-off was "a logical step in de-risking the business". It follows a similar spin-off of Elan Drug Technologies and its subsequent merger with Alkermes.
The company said the new "core" Elan would employ 90-110 people and generate strong growth and expanding margins, driven primarily by Tysabri, which had sales of $1.5 billion last year and is expected to grow by 15% annually over the next four years.
Tysabri could also have a longer commercial life than analysts have expected, as Martin said Elan and Biogen had secured additional patent protection taking exclusivity out to 2020 from 2017.
The other main assets in the core business will be an experimental neuropsychiatry drug, ELND005, in mid-stage tests and the Alzheimer's programme.
The new Neotope Biosciences business will have around 80 staff. It will get $120-$130 million in start-up capital from Elan and Elan will retain a 14 to 18% stake.
