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Royalty Pharma may offer $6.6 billion bid for Elan

By Stephen Mangan and Padraic Halpin

DUBLIN (Reuters) - U.S. investment firm Royalty Pharma has made a $6.6 billion approach to Irish drugmaker Elan, targeting royalty rights for multiple sclerosis treatment Tysabri worth hundreds of millions of dollars annually.

Elan said earlier this month it was to sell its 50 percent interest in Tysabri for $3.25 billion plus future royalty payments to U.S. partner Biogen Idec, and then reinvent itself with a series of acquisitions.

Those royalty payments on future Tysabri sales, which rose 8 percent to $1.63 billion in 2012, will be 12 percent for the first year and 18 percent thereafter.

Royalty Pharma, which buys royalty streams of patented drugs and whose was indicative approach was worth $11 per Elan share, said on Monday that after the Biogen Idec deal, Elan would have two material assets - cash and the Tysabri royalty payments.

"The risks and lack of earnings visibility associated with Elan's acquisition and in-licensing strategy (are) substantial," it said. Elan shares were up 6.5 percent at $11.29 by 11.30 a.m. ET.

Royalty Pharma said Elan shareholders would be able to invest cash paid for their Elan Stock in other drug companies without paying a premium to gain control, as would likely be the case were Elan itself to buy a controlling stake in a company.

Elan, in which U.S. group Johnson & Johnson is an 18 percent shareholder, said Royalty Pharma's proposed bid was highly opportunistic because shareholders had not had the opportunity to assess the full benefit of the Tysabri sale.

Deutsche Bank analyst Richard Parkes said the small premium suggested by Royalty Pharma might deter Elan's shareholders.

"But it is not totally unreasonable. Investors are now faced with a straight question of whether you lock in the value at a small discount to asset value or you have faith that management can deliver on its planned strategy of acquiring assets."

Royalty Pharma said it had not received a formal response from Elan and had been unsuccessful in efforts to engage with the company since making contact on February 18.

It also said it was surprised by Elan's February 22 announcement that it planned to return $1 billion to shareholders buying back shares, because it did not address the proposed offer.

STRATEGY DISPUTE

Elan told Reuters last month it had spoken to several companies about potential deals.

Royalty Pharma said good assets in the industry were in short supply and Elan's senior management had little experience making acquisitions.

Royalty Pharma, whose portfolio includes rheumatoid arthritis drugs Humira and Remicade, last year paid $761 million for a stake in Biogen's MS treatment Tecfidera.

Royalty Pharma said it planned to finance any offer through a combination of available cash and debt, and was working with financial advisers led by J.P. Morgan and lenders led by BofA Merrill Lynch to put in place the necessary debt financing.

There was talk last year that Biogen might try to buy Elan outright, following the failure of the Irish company's Alzheimer's drug bapineuzumab, which it was working on with Johnson & Johnson and Pfizer.

(Editing by Dan Lalor and Mark Potter)

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