Irish-based Elan Corporation had said it will acquire Neurex, a US-based bio-pharmaceutical company which develops products for pain management and the acute care market, in a deal worth $700 million (£498 million).
The acquisition, the largest in Elan's history, took the market by surprise, as it comes a week after the company announced plans to purchase Carnrick Laboratories for $150 million. It brings the amount Elan has spent on mergers and acquisitions to some $2 billion over the last two years.
Elan also said yesterday that it will establish a consolidated pharmaceutical products division, Elan Pharmaceuticals, of which Neurex will form a part.
Elan is acquiring Neurex in a tax-free, all-share deal which values Neurex at $31.81 per share based on Elan's closing price of $62.38 on April 28th. Under the agreement, each common share of Neurex will be exchanged for 0.51 of an Elan American Depositary Share (ADS).
The agreement is subject to approval by the shareholders of Neurex and clearance by the US and Irish regulatory authorities but has already been approved by the boards of Elan and Neurex.
As part of the transaction, Elan will incur a one-time charge representing the write-off of acquired in-process research and development. Excluding this, the impact on Elan's earnings for the 1998 and 1999 fiscal years is expected to a be a reduction of around 5 per cent each year in diluted earnings per share.
Elan's share price had fallen by $3.625 to $58.75 (£41.80) in New York by the time business closed in Dublin. Some 2.8 million shares had changed hands on Wall Street but the share price was unchanged in Dublin at £45.02. Traders said that although the deal might depress the share price in the short term given the amount of paper that would have to be issued, it would offer value in the long run.
The acquisition, which is expected to be completed in the third quarter of 1998, allows Elan to expand its presence in the niche markets of pain management and acute care and gives it a significant position in directly-marketed pharmaceuticals.
It will strengthen Elan's direct marketing structure in the US and also adds a potential blockbuster called Ziconotide to Elan's development pipeline. Neurex also recently launched a product called Corlopam in the US for the treatment of severe hypertension. "I am delighted to welcome the Neurex management and staff to Elan," the chairman and chief executive officer, Mr Donal Geaney, said. "Neurex has an exciting portfolio of products including Ziconotide, which is in late-stage development initially for the treatment of neuropathic and malignant pain."
Once the deal is completed, Neurex will become part of Elan Pharmaceuticals, which will also include Athena Neurosciences, acquired in 1996, Elan's international pharmaceutical marketing business, and Carnrick. Mr Paul C. Goddard, chairman and chief executive of Neurex, will head the new division which will exist alongside Elan's established drug delivery business. It will have an initial combined sales-force of 320 in the US.
Analysts say Elan has been keen to develop the directly marketed side of its business to lessen its dependence on the drug delivery side and the acquisition is an important step in this direction.
Mr Geaney said the company aimed to have revenue of £1 billion by the end of 2001. It hopes that 80 per cent of that would come from product sales, with 50 per cent or some $400 million coming from directly marketed pharmaceuticals.
