Elan well worth a punt at this price
Sunday July 05 2009
AND with one bound our hero was free. Elan's deal with pharmaceutical giant Johnson & Johnson largely resolves worries about its $1.4bn debt mountain, while leaving it with a 49.9 per cent stake in its Alzheimer's disease treatment Bapineuzumab.
On Thursday, Elan announced a deal with J&J that will see the US company pay $1bn for new Elan shares. The deal will give J&J an 18.4 per cent stake in Elan.
In addition, J&J has pledged to invest up to $500m to develop and launch Bapineuzumab. In return, J&J will end up with a 50.1 per cent stake in Elan's Alzheimer's Immunotherapy Programme, whose main asset is Bapineuzumab.
The deal transforms Elan's financial position. The group had net debts of almost $1.4bn at the end of March. The J&J transaction will, at a stroke, cut this to less than $400m. It also wipes out the deficit in Elan's shareholders' funds, which stood at $232m at the end of March.
Not surprisingly, the deal had an immediate impact on the Elan share price, which jumped from just €5.17 at the start of the week, to €5.70 on Friday.
At the current share price, Elan is now capitalised at €2.7bn, making it the fourth most valuable company whose shares are traded on the Irish Stock Exchange.
So where does Elan go from here? This week's deal means that, when it comes to Bapineuzumab, J&J is very much in the driving seat. The expectation must be that if all goes according to plan, J&J will either use its 18.6 per cent stake as a platform from which to mount a bid for the rest of Elan, or else buy Elan's remaining 49.9 per cent shareholding in the Alzheimer's Immunotherapy Programme.
The deal still leaves Elan with Prialt, used to treat severe chronic pain, and its half share of the multiple sclerosis drug Tysabri, which now has annual sales approaching $600m. Elan also has a promising development pipeline. With its debt problem now largely resolved, the future development of the unpronounceable Bapineuzumab underwritten by J&J and sales of Tysabri growing rapidly, Elan is now worth a punt.
