Elan Corporation plc‘s ( ELN - Snapshot Report ) Board of Directors recently approved the initiation of a cash dividend policy. The dividend policy will enable the company’s shareholders to enjoy long-term cash flow generated by multiple sclerosis drug Tysabri.

Last month, Biogen Idec ( BIIB - Analyst Report ) had gained full strategic, commercial and operational control over Tysabri for an upfront payment of $3.25 billion to Elan. Following the news, Elan announced that it will invest a part of its net proceeds of $3.25 billion from the transaction in different business assets. The company further stated that it intends to refinance its outstanding debt by a share repurchase program by utilizing $1 billion of the upfront proceeds post the restructuring of Tysabri.

As per the dividend policy, Elan will be paying a percentage of the Tysabri royalty, paid by Biogen, to its share holders. Initially, 20% of those royalties will be paid to the shareholders.

As per the transaction, which is expected to go through in the first half of this year, Biogen will make a royalty payment of 12% on the worldwide net sales of Tysabri (for all indications). 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 on over $2 billion of global net sales of Tysabri. Tysabri sales were $1.6 billion in 2012.

Last week, Royalty Pharma, a private entity, showed interest in acquiring Elan at $11 for every share of Elan and its American Depository Shares (ADS). Given that Elan’s Board has approved the proposed dividend policy, we believe that the company is not taking Royalty Pharma’s offer into consideration.

However, Royalty Pharma is not loosing hope. The company is currently discussing with the Elan shareholders and is ready to implement a new offer. Royalty Pharma believes that it will be able to complete due diligence in 20 days.

We expect Elan to actively pursue more in-licensing deals or acquisitions. Elan, a biotechnology company, currently carries a Zacks Rank #5 (Strong Sell). Other well placed biotech stocks include Cytokinetics Inc. ( CYTK - Snapshot Report ) and Agenus Inc. ( AGEN - Snapshot Report ) . While Agenus carries a Zacks Rank #2 (Buy), Cytokinetics carries a Zacks Rank #1 (Strong Buy).