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Elan Corporation’s Board of Directors recently responded to Echo Pharma Acquisition Limited’s (“Royalty Pharma”) offer to acquire Elan's shares under Rule 2.5 of the Irish Takeover Rules.

Elan stated that it will take into consideration any credible proposal from Royalty Pharma or any other company. The Board of Directors at Elan will assess Royalty Pharma’s offer and will advise its shareholders accordingly.

We note that Royalty Pharma recently offered different prices for each outstanding share and American Depositary Share (ADS) of Elan at different ‘Dutch Auction Strike Price’. We note that 1 ADS is equal to 1 share of Elan. Notably, in Mar 2013, Elan commenced a $1 billion share repurchase program by way of a “Dutch Auction”. The price range of the auction was between $11.25 and $13.00. Elan would then repurchase shares at the minimum price that will allow it to purchase shares worth $1 billion. Royalty Pharma’s offer is based on that price.

Royalty Pharma’s offer will be $12.00 if the Dutch Auction Strike Price is $11.75 or $12.00, $11.50 for $11.50, $11.25 for $11.25 and $11.00 if the strike price is equal to or greater than $12.25 and less than or equal to US$13.00, or on the occurrence of certain other events as set forth in the auction.

Royalty Pharma also stated that they are not aware of Elan’s current cash position. If the latter does not disclose its cash position, Royalty Pharma will reduce its offer by $1.00 and Elan’s shareholders will have an option to receive up to $1.00 in cash depending on its cash position.

Notably, in Feb 2013, Royalty Pharma showed interest in acquiring Elan at $11 for every share of Elan and its ADS. Royalty Pharma’s offer represented a premium of 6.3% to Elan’s closing price on Feb 15, 2013.

Meanwhile, Elan closed its Tysabri (natalizumab) collaboration transaction with Biogen Idec (BIIB - Analyst Report) earlier this month. As a result, Biogen gained full strategic, commercial and operational control over the multiple sclerosis drug.

We expect investor focus to stay on the decision of the Board of Elan on Royalty Pharma’s announcement. Elan, a biotechnology company, currently carries a Zacks Rank #3 (Hold). Currently, well-placed biotech stocks include WuXi PharmaTech (WX - Snapshot Report) and QLT Inc. (QLTI - Analyst Report). Both stocks carry a Zacks Rank #1 (Strong Buy).

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