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Elan Announces Transactions: Decisively Transforming the Company

Published: Monday, May 20, 2013
Last Updated: Monday, May 20, 2013
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Upon shareholder approval, the totality of these strategically driven decisions will form a dynamic and unique business foundation for Elan in the years ahead.

CEO Commentary

Kelly Martin, Chief Executive Officer of Elan commented, “Our proposed package of transactions is designed to create a balance of risk (science, molecules, regulatory and reimbursement) with the benefit of diversification (therapeutics, geographies, science and operational constructs) to produce long-term growth in income and value.”

Mr Martin added, “Our goal is to create a company that achieves distinct and sustainable success in the health care space. We are not constrained by legacy infrastructure nor associated costs. We will operate flexible business constructs that allow for participation in various parts of the industry value chain for the direct benefit of our shareholders. The resulting ability for effective long-term planning enables us to generate significant after tax margin through advantageous tax structures. Lastly, the acceleration and advancements in science, clinical knowledge and diagnostics across multiple geographies should continue to generate a multitude of additional opportunities for Elan to consider in the months and years ahead.”

Proposed Transactions

AOP Orphan Pharmaceuticals (AOP)

•    Private company, headquartered in Vienna, Austria, focused on rare and orphan diseases
•    Business: clinical translation and medical marketing of innovative drugs in orphan indications
•    Therapeutic areas: Hematology & Oncology, Cardiology & Pulmonology, Neurology, and Metabolic Disorders
•    Four late stage pipeline programs (2014-2018 time frame) in: Hematology/Oncology and Cardiology/Pulmonology indications
•    Founded in 1996 by Dr. Rudolf Widmann (formerly GSK/Wellcome)
•    Approximately 145 employees
•    2012 Revenue:€59 million (~ $76 million ); 2012 Adjusted EBITDA:€15.5 million (~ $20 million)1

Elan will acquire 100% of AOP and upon close Elan will pay €263.5million for the company, comprised of €175.7 million in cash and €87.8 million of Elan ordinary shares. In addition, there will be potential cash milestone payments of up to €270 million on the advancement (filing and acceptance) of certain late stage clinical programs.

Newbridge Pharmaceuticals (Newbridge)

•    Private start-up specialty pharmaceutical company, headquartered in Dubai, UAE and focused on the Africa Middle East and Turkey (AfMET) regions
•    Business: specializing in in-licensing, acquiring, registering and commercializing approved pharmaceuticals and biologics products
•    Therapeutic areas include oncology, immunology, metabolic disorders, gastrointestinal and CNS
•    Other shareholders include Kuwait Life Sciences Company and Burrill & Company
•    Approximately 40 employees
•    Joe Henein – President and Chief Executive Officer (formerly Wyeth Pharmaceuticals)

Elan has completed the first step in its investment in Newbridge by paying $40 million in exchange for 48% of the total fully diluted capitalization of the company. In addition, Elan has appointed two Directors to the Board of Newbridge. Elan has the option to purchase the remaining stake in Newbridge by 2015 for a sum of $244 million.

COO Commentary

Hans Peter Hasler, Elan’s Chief Operating Officer, added “AOP Orphan and Newbridge Pharmaceuticals together create a highly unique business platform. The geographic markets in which they operate are characterized by underlying growth and demand for health care products, broad economic development and increased patient and caregiver knowledge in disease areas such as oncology, cardiovascular-pulmonology, hematology, gastroenterology, neurology and a variety of rare and orphan diseases. We look forward to working together with Dr. Widmann and Joe Henein and their teams to grow, advance and leverage their respective business platforms.”

Speranza Therapeutics (ELND005)

•    Divest ELND005 to an independent company, Speranza Therapeutics, focused on progressing the development of ELND005 (Scyllo-inositol)
•    Current indications and activity for ELND005: Bi-Polar, Agitation/Aggression in Alzheimer’s disease, and Down Syndrome
•    Business objective: file in lead indication – Agitation/Aggression in Alzheimer’s disease
•    Third party equity financial partner will continue with clinical plans with current management
•    Current clinical trials and operations will continue – maintaining momentum

Elan will commit $70 million to the new entity upfront (plus up to a potential future $8 million) for an 18% minority equity position, royalties in major markets along with additional milestones, and retention of commercial rights in certain territories and markets. The third party equity financial partner will commit $20 million for 62% equity position (plus up to a potential future $2 million). The remaining 20% equity will be allocated among Speranza management. This allows Elan to eliminate the operating activities associated with the development of the drug (2013 estimated spend:~ $80 million), while at the same time maintaining a share of the potential upside.

Capital Structure, Balance Sheet and Shareholder Alignment

•    Debt offering of $800m: optimize capital structure, maintain strategic flexibility and significant cash balances
•    $200 million share repurchase program planned; details to be announced
•    Theravance Royalty Participation Interest: 20% pass through cash dividend added to existing Tysabri 20% dividend

CFO Commentary

Chief Financial Officer Nigel Clerkin added, “Upon approval and closing of this set of transactions, the Elan business would be comprised of very high net margin, multi asset and long term revenue streams (within Multiple Sclerosis and Respiratory), an orphan disease platform, and a strong regional commercial presence. All of these are underpinned by a strong balance sheet as well as a highly efficient and strategically advantageous tax structure.”

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