Cash and Tysabri Update From Elan - Analyst Blog


Elan Corporation ( ELN ) recently provided a brief update on its cash position and multiple sclerosis drug Tysabri's value to its shareholders and the market at large.

Elan stated in its press release that the underlying value of Tysabri is $11.85 per share with an upside potential of $17.15 per share. The company has set its cash value at $3.65 per share. As a result, the total aggregate value of Tysabri, before the deduction of operating expenses along with cash was in the range of $15.50 - $20.80 per share.

Royalty Pharma's latest bid of $12.50 per share thus undervalues these assets by up to $4.3 billion. Elan also believes that its shareholders will be deprived of billions of dollars of present value if they tender Elan's shares at $12.50.

We remind investors that Elan's Board of Directors recently rejected Royalty Pharma's offer for the third time. Last week, Royalty Pharma raised its offer to acquire all shares of Elan to $12.50 per share from $11.25 per share earlier. Royalty Pharma's previous two previous offers of $11.00 per share and $11.25 per share were also rejected by Elan's Board.

Elan also mentioned in its press release that Tysabri is expected to generate cash flows for more than a decade. The drug's clinical and product characteristics help to minimize generic threat.

Moreover, revenue growth of Tysabri was 19% on a compounded basis in the period 2008-2012 and is expected to grow at a CAGR of 11-16% in the period 2012-2016. At this growth rate the royalties from the drug will come to around $484−$611 million by 2016. The royalties will be shared with Elan's shareholders through a 20% dividend.

We remind investors that Elan sold its Tysabri stake to Biogen Idec ( BIIB ) in Apr 2013. As per the terms of the transaction Biogen made an upfront payment of $3.25 billion to Elan. Elan is also eligible to receive a royalty payment of 12% on worldwide net sales of Tysabri (for all indications) for the first year. After the first year, Elan will receive a royalty of 18% on up to $2 billion of global net sales of Tysabri and 25% thereafter.

Meanwhile, Elan has also announced strategic initiatives going forward. Elan has planned a couple of acquisitions in addition to the divestment of its pipeline candidate ELND005 (agitation/aggression in Alzheimer's disease and Downs Syndrome).

The company also intends to initiate a cash repurchase program among other transactions. However, these transactions will only go through upon approval from Elan's shareholders after the company's Extraordinary General Meeting on Jun 17, 2013. The company believes that these initiatives will help to diversify its business and reduce risk.

Elan presently carries a Zacks Rank #2 (Buy). Jazz Pharmaceuticals Public Limited Company ( JAZZ ) and Santarus Inc. ( SNTS ) currently looks better positioned with a Zacks Rank #1 (Strong Buy).

BIOGEN IDEC INC (BIIB): Free Stock Analysis Report

ELAN CP PLC ADR (ELN): Free Stock Analysis Report

JAZZ PHARMACEUT (JAZZ): Free Stock Analysis Report

SANTARUS INC (SNTS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BIIB , ELN , JAZZ , SNTS

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