UPDATE 3-Elan sells EDT unit to Alkermes for $960 mln

Mon May 9, 2011 12:57pm EDT

Related Topics

* To get $500 million cash, 25 pct stake in new group

* Alkermes and EDT to have revenue in excess of $450 mln

* Alkermes shifts HQ to Ireland; considering Dublin listing

* Elan FD to join Alkermes, Nigel Clerkin appointed Elan FD

(Adds detail from analyst call, updates share price)

By Carmel Crimmins

DUBLIN, May 9 (Reuters) - Irish group Elan ELN.I is selling its drug delivery business to U.S. firm Alkermes (ALKS.O) in a $960 million deal, cutting its debt pile by two thirds and making it a pure biotechnology company.

Elan will get 500 million euros ($719 million) cash and a 25 percent stake in Alkermes which it will start reducing, in consultation with Alkermes, after a six-month lock-up period. Elan will likely retain a small holding in the group.

"We think this is a very shareholder-friendly deal. We are going to have a lot of cash and we are going to have a lot of growth on the topline," chief executive Kelly Martin told Reuters on Monday.

"This was a great way to derisk financially, increase our focus on the science and be a biotech company."

While Elan will lose 80 million euros core earnings from selling Elan Drug Technologies (EDT), Kelly said the company would more than recoup that within 12 months due to strong sales growth from its key multiple sclerosis drug, Tysabri.

The group, which adds $100 million to its bottom line for every 10,000 extra patients it adds to the treatment, said it expects Tysabri to dive overall revenue growth of 15 percent per year over the next three to five years.

"The biotech business on a standalone basis we still see as growing strong double digit growth on revenue and the same on the bottom line (EBITDA)."

"We see significant growth opportunities in Tysabri both in the U.S. and even more starkly outside the U.S. The growth rates outside the U.S. for this asset are quite spectacular."

Elan has been trying to spin off EDT, which develops technologies that can minimise drugs' side effects, since 2008 but the economic crisis lead to a drought in financing and the plan was temporarily shelved.

"It's a good deal. EDT was always a secondary part of the business and this enables the company to crystallise its value in a short time frame and use the proceeds to focus on generating greater returns from the rest of the business," said Adrian Howd at Berenberg Bank.

"It looks like they have got a good price for it. It's at the top end of my expectations, I was looking at around $750 million to $1 billion."

The deal will cut Elan's net debt to $250 million, meaning that for the first time in eight years the group's cash or investments exceed its debts.

Shares in the group, which is 18 percent owned by Johnson & Johnson (JNJ.N), rose over two percent to 5.58 euros.

Dealers said the deal was not a huge surpise and said the stock's recent strong run, it hit a 12-month high of 5.83 euros late last month, capped a stronger reaction. The main index was up 0.17 percent.

IRISH LISTING

With EDT under its belt, Alkermes will have revenues in excess of $450 million annually from 25 products, including treatments for bipolor disorder and schizophrenia, and adjusted core profit of $80 million.

Alkermes, whose shares had risen 2.3 percent to $14.80 by 1620 GMT, said it would report full-year revenue of around $185 million later this month.

On a pro forma basis, Alkermes expects revenue to grow next year. In fiscal year 2013 and beyond, growth would be on a double digit basis. On a proforma basis, adjusted core profit of between $70 and $90 million is expected for fiscal year 2012.

Profit margins are expected to grow to between 30 and 35 percent in fiscal 2013 and beyond from 15 to 20 percent in 2012.

"We have five drugs that are going to be driving growth. Most biotechnology companies are characterised by one or at most two," said Richard Pops, chief executive of Alkermes.

As part of the deal, Alkermes will move its headquarters to Dublin and Pops said the group would consider a stock market listing in Dublin to add to its main listing on Nasdaq.

Mired in a deep financial crisis, Ireland's main stock market hasn't had a fresh blood since 2007, when its property bubble was at its height.

Elan's finance director Shane Cook, currently head of EDT, will join Alkermes as president. Nigel Clerkin, a senior vice-president in Elan's finance department, will replace Cook.

Both Elan, which employs around 100 people at its Dublin HQ, and Alkermes, which will have around 450 Irish employees, said they would be looking to increase staff numbers in Ireland. They declined to quantify the increase.

Alkermes has obtained loans from Morgan Stanley and HSBC to fund the deal, which is expected to close during the third quarter of this year subject to shareholder approval. (Reporting by Carmel Crimmins; Editing by David Holmes and Louise Heavens) ($1 = 0.6953 euro)

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