US based Alkermes Inc is to buy Elan's drug formulation and manufacturing unit in a deal worth an estimated $960 million.

The cash and stock transaction will see Elan Drug Technologies and Alkermes merge under a new holding company, Alkermes plc, which wil be incorporated in Ireland.

Under the deal, which has already been approved by the boards of Elan and Alkermes, Elan will receive $500 million in cash and 31.9 million ordinary shares of Alkermes plc common stock.

Alkermes Inc shareholders will receive one ordinary share of Alkermes plc in exchange for each share held at the time of the merger.

Once combined, the firm is expected to have revenues of $450 million a year.

Elan chief executive Kelly Martin, said the transaction would advance "aggressively" a number strategic and financial objectives for Elan. "Namely, it enables us to reduce the debt on our balance sheet and further improve our capital structure, increases operating leverage, allows for additional focus and continued disciplined investment in a broad array of opportunities within the neurology space from a scientific, clinical and product point of view and lastly, provides Elan shareholders with the opportunity to realize further value – over time – from the equity position in Alkermes plc."

The new company is expected to showrobust revenue growth, with five high-growth commercial products and complementary new drug development capabilities.

“The merger will be financially transformative and create a profitable, global biopharmaceutical company with a diversified central nervouse system product portfolio and a strong foundation for growth,” said Alkermes chief executive Richard Pops.

“Both companies have a proven track record as innovators. 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.”

Mr Pops will become chairman and chief executive of the new company, while the current head of the Elan unit Shane Cook will be president.

Alkermes is to finance the deal with a loan of up to $450 million from Morgan Stanley and HSBC Bank.