Potential offer from Royalty Pharma comes as Elan ponders how to spend its cash from Tysabri rights

Irish drug maker Elan has been surprised by a potential $6.6 billion (£4.4 billion) offer being mooted by investment firm Royalty Pharma.

In August 2012, Elan company spun off its drug discovery wing – including 80 employees – to focus on maximising the return from existing products. Then, in February this year, it struck a $3.25 billion deal with US biotech Biogen Idec to sell its 50% of the rights to Tysabri (natalizumab) injections for the treatment of multiple sclerosis (Biogen already owned the other 50%). The Tysabri brand represented the bulk of Elan’s portfolio. Without it, the company now has primarily cash and the promise of royalty payments with which to buy other companies or strike licensing deals for existing products.

But, according to Royalty Pharma, the current Elan strategy is risky. ‘The pharmaceutical industry is highly competitive and Royalty Pharma believes many companies have suffered poor returns pursuing such a strategy,’ it says. Furthermore, the Elan management team does not have a track record of generating income through such activities, it adds. Royalty Pharma says that the best deal for Elan shareholders is to take up its offer of $11 per share.

Elan described the timing of the move, in the immediate aftermath of the Tysabri deal, as ‘highly opportunistic’ and the details as ‘heavily conditional’.