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Update on Elan's Plans

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Elan Corporation plc recently provided an update on its proposed $1billion share repurchase program which is expected to be implemented after the close of the Tysabri (multiple sclerosis) restructuring transaction.

In Feb 2013, Biogen Idec (BIIB - Free Report) will gain 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 transaction of Tysabri.

As per the transaction, which is expected to go through shortly, Biogen will make a royalty payment of 12% on 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.

A few days back, Elan’s Board of Directors had approved the initiation of a cash dividend policy, which will enable the company’s shareholders to enjoy long-term cash flow generated by Tysabri.

In Feb, 2013, 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 and provided an update on its proposed share repurchase program, we believe that the company is not taking Royalty Pharma’s offer into consideration.

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

Elan, a biotechnology company, currently carries a Zacks Rank #5 (Strong Sell). Currently, well-placed biotech stocks include Cytokinetics Inc. (CYTK - Free Report) and Agenus Inc. (AGEN - Free Report) . While Agenus carries a Zacks Rank #2 (Buy), Cytokinetics carries a Zacks Rank #1 (Strong Buy).

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