Date: May 09, 2011 Author: Luke Timmerman Source: xConomy (
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Alkermes has struck a big acquisition deal that vaults it into the club of "Big Biotech" companies it has long yearned to join.
The Waltham, MA-based biotech company (NASDAQ: ALKS) is announcing today it has agreed to acquire Elan Drug Technologies, the chemical formulation and manufacturing unit of Ireland-based Elan (NYSE: ELN) in a deal valued at $960 million in cash and stock. The new company, to be called Alkermes plc, will be incorporated in Dublin, although Alkermes CEO Richard Pops will remain as chairman and CEO of the new trans-Atlantic company.
By obtaining the drug technology unit of Elan, Alkermes is adding a group of 450 employees in Ireland, and building out a portfolio of 25 commercial products under one corporate banner. Five of those products are expected to be significant revenue drivers for the future. The combined company is expected to have diversified revenues exceeding $450 million from a combination of product sales, drug royalties, and manufacturing income.
The big strategic move clearly puts Alkermes into the class of "Big Biotech" companies that are profitable and diversified enough to remain big and stable for the long haul—unlike most biotechs, which often live or die on the success of one or two products. Pops talked about his desire to put Alkermes in that top-tier category of biotech companies in an interview with Xconomy more than two years ago.
"This merger will bring the scale and resources for strategic and balanced investment across the whole product continuum, from R&D innovation to clinical development, to world-class manufacturing and commercial expansion," Pops said in a statement.
The financial terms of the deal are pretty straightforward. Elan will get $500 million in cash upfront, and 31.9 million shares of stock in the new Alkermes plc, which represents about a 25 percent equity ownership stake. Alkermes is paying for this deal partly by securing a $450 million loan commitment from Morgan Stanley and HSBC. Elan will remain an independent company, with less debt. The company relies heavily on its part ownership with Biogen Idec in the hit multiple sclerosis drug natalizumab (Tysabri).
Alkermes' historic strength as a company comes from its ability to make drugs remain stable for longer periods of time in the bloodstream, enabling less frequent injections. It generates cash from royalties on Johnson & Johnson's anti-psychotic risperidone (Risperdal Consta), as well as naltrexone (Vivitrol), its own drug for combatting addictions to opioid-based painkillers. The company is also in position to collect sizable royalties on a once-weekly injectable drug for diabetes, exenatide once-weekly (Bydureon) being developed by Amylin Pharmaceuticals and Eli Lilly.
By getting Elan Drug Technologies, Alkermes is obtaining a stake in two recently approved drugs, paliperidone palmitate (Invega Sustenna) for schizophrenia and dalfampridine (Ampyra) for multiple sclerosis.
All five of those drugs have long patent lives and "significant growth potential in large therapeutic areas," Alkermes said in a statement.
Elan retains the right to name one independent director to the board of Alkermes plc, as long as it holds a 10 percent ownership stake. Alkermes' board currently has 10 members.
The deal must be approved by Alkermes shareholders, and pass an antitrust review in the U.S. The companies said they expect the deal to close before the end of September.
Alkermes plans to host a webcast conference call to discuss the deal at 8:30 am ET today.
