Elan Corporation (ELN) recently announced its decision to split into two separate publicly traded companies. The spin-off, approved by its Board of Directors, is expected to be completed by year end. The closure of the transaction is dependent on many conditions, including approval by the stockholders and the holders of the 2016 notes. The closure of the spin-off will see Elan incurring a charge.
Management stated that the move to create two unique companies is aimed at providing stockholders with more clarity apart from widening their choices regarding long-term decision making.
While one company will focus on drug discovery, the other, which will retain the company name, will have Tysabri (co-marketed with Biogen Idec Inc. (BIIB)), ELND005 (phase II) and Elan’s interest in Johnson & Johnson‘s (JNJ) Janssen Alzheimer Immunotherapy. The company which will focus on drug discovery will be named Neotope Biosciences.
The company, which will function under the name Elan Corporation, is expected to be profitable, generating significant growth, immediately following the spin-off. This company is expected to generate earnings of $1.00 per share by 2015 and will focus on broadening Tysabri’s reach, apart from facilitating ELND005’s development.
Elan Corporation, apart from providing the initial capital of $120-$130 million to Neotope Biosciences, will retain a 14-18% minority equity interest in Neotope. Neotope Biosciences intends to file three investigational new drug (IND) applications by 2015.
We remind investors that in September 2011, Elan had sold its drug delivery unit – Elan Drug Technologies – to Alkermes (ALKS) for approximately $1 billion. The merged entity, headquartered in Dublin, Ireland, is known as Alkermes plc.
Per the agreement, Elan received $500 million in cash apart from 31.9 million of Alkermes’ ordinary shares. Elan received a 25% stake in the combined company.
In March 2012, Elan sold 24.15 million shares, or 76% of its stake in Alkermes. Excluding underwriting fees, Elan recorded net proceeds of approximately $381 million from this transaction. Elan retained the remaining 7.75 million Alkermes shares due to certain legal and contractual transfer restrictions.
Our Recommendation
We currently have an Underperform recommendation on Elan. The stock carries a Zacks #5 Rank (Strong Sell rating) in the short run.
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