Elan Sells 76% Stake in Alkermes

Elan ( ELN - Snapshot Report ) recently announced that it has sold 24.15 million shares, or 76% of its stake in Alkermes plc ( ALKS - Analyst Report ) . Excluding underwriter fees, Elan recorded net proceeds of approximately $381 million from this transaction. Elan has retained 7.75 million of Alkermes shares due to certain legal and contractual transfer restrictions.

Elan had acquired the shares in Alkermes in September 2011 following the merger of its Elan Drug Technologies (EDT) segment with Alkermes. The merged entity, known as Alkermes plc, is headquartered in Dublin, Ireland. As per the terms of the deal, Alkermes made a cash payment of $500 million apart from giving Elan 31.9 million of its ordinary shares.

Following the sale of the EDT segment, Elan took measures to de-lever its balance sheet and repaid a significant amount of debt, thereby reducing its annual interest expense considerably.

Post the disposal of the EDT segment, Elan is focusing solely on the BioNeurology Division, which is driven by Tysabri, the principal growth driver at Elan. Tysabri is approved for the treatment of multiple sclerosis and Crohn’s disease and is developed in collaboration with Biogen Idec. ( BIIB - Analyst Report ) . In 2011, Elan recorded Tysabri sales of $1.1 billion, up 25%.

In January 2012, Tysabri’s label was updated to include anti-JC virus antibody status as one potential factor that could help stratify the risk of progressive multifocal leukoencephalopathy (PML) occurring in patients treated with Tysabri.

Our Recommendation

We currently have a Neutral recommendation on Elan. The stock carries a Zacks #4 Rank (Sell rating) in the short run. The company is highly dependent on Tysabri for revenue generation.