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Elan offers Tysabri dividend, dismisses Royalty offer

By Padraic Halpin

DUBLIN (Reuters) - Irish drugmaker Elan has sweetened the terms on offer to shareholders under its $3.25 billion disposal plan, as it aims to stave off an approach for the company from U.S. investment firm Royalty Pharma .

Elan said on Monday it would give shareholders 20 percent of future royalties from multiple sclerosis drug Tysabri, in which it holds a 50 percent interest that it proposes selling to its U.S. partner Biogen Idec .

The Irish group had unveiled the restructuring a month ago, saying it would gain strategic flexibility to buy new assets. It has already said it would also return $1 billion to shareholders.

Those plans were put under question when New York-based Royalty made its $6.6 billion approach last week, but Elan said on Monday most of its shareholders did not view the idea as worth consideration.

Elan Chief Executive Kelly Martin said neither the cash handout to shareholders or the royalty plan were in direct response to Royalty's approach.

"We simply don't view the Royalty indication of interest as credible. The vast majority of our investor base simply don't view Royalty's indication as worthy of any discussion," Martin told Reuters in a telephone interview.

"I wish Royalty well, they can do what they need to do, but we're not in any discussions with them at all on any topic and we don't see any need to have those discussions," Martin said.

The CEO added he was referring to Elan's outside investors and had not discussed the approach with Johnson & Johnson , which owns 18 percent of the group.

Royalty, which buys royalty streams of patented drugs, said last week it had not received a formal response from Elan and planned to spend the next few weeks calling Elan shareholders, according to a source familiar with the offer.

The group's indicative approach, worth $11 per Elan share, could scupper Elan's plans to spend the rest of the proceeds from the Tysabri deal on a series of acquisitions, effectively reinventing itself as a company.

Elan shares were up 1 percent at 11.46 euros by 0538 ET.

POTENTIAL DEALS

Martin dismissed Royalty's criticism that Elan's senior management had little experience making acquisitions. He said potential deals the group was looking at included some assets worth more than $1 billion.

The Tysabri deal should close in the coming month or two, Martin said, adding Elan would provide further clarity on its plans in coming days and weeks.

Once the Tysabri deal closes, the Dublin-based company said shareholders can expect the first of twice-yearly dividend payments on the drug in the fourth quarter of 2013.

In the deal with Biogen, Elan's royalty payments on future Tysabri sales, which rose 8 percent to $1.63 billion in 2012, will be 12 percent for the first year, 18 percent after that, and 25 percent when annual sales rise above $2 billion.

Martin said shareholders would therefore get 5 percent of any income on the drug above $2 billion. Biogen aims to increase patient numbers over time to 100,000 from the 72,700 at the end of last year, a level that would make Tysabri a $2 billion drug.

He added that the group believed that establishing a direct link between shareholders and a drug's cash flow was a unique proposition in an industry where it said biotech group Amgen was alone it paying out a consistent dividend.

"We want to create what we think is a unique company because I think this industry is totally ripe for a completely different approach to how it assesses assets, manages assets and values assets," Martin said.

"I think this industry in some regards is in the stone age as far as how it looks at its business ... This opens up an entire group of new investors."

No-one at Royalty could immediately be reached for comment.

(Editing by David Holmes)

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