Elan in Deal on Drug Royalties

LONDON - Elan, the Irish drug maker that is the target of a hostile takeover, said Monday that it had agreed to buy a share of royalties on new drugs from Theravance of the United States for $1 billion.

Under the agreement, Elan would receive 21 percent of royalties from four respiratory drugs developed by Theravance in a joint program with GlaxoSmithKline. Elan, which is fending off a takeover effort from Royalty Pharma, said 20 percent of the proceeds of the deal would be paid to shareholders as a dividend.

Elan’s chief executive, Kelly Martin, said the deal would help Elan to diversify its business and “should benefit our shareholders by spreading the inherent risk embedded in any one specific asset.”

“This investment enables our shareholders to gain exposure to four high-quality, late-stage assets within the large and growing global respiratory market,” he said in a statement.

RP Management, or Royalty Pharma, proposed to buy Elan in February for $6.6 billion. Elan’s board and shareholders rejected the bid in April after the management called it “highly opportunistic”. Elan sold its stake in the blockbuster multiple sclerosis drug Tysabri for $3.25 billion in February and said it planned to use part of the proceeds for acquisitions. The company has yet to outline a concrete acquisition strategy or say what assets it plans to acquire.

Royalty Pharma continues to be interested in Elan and had argued that the company should accept its offer because it would be more beneficial to shareholders, given Elan’s limited experience with acquisitions or in-licensed products.

Elan’s shares rose 0.5 percent in Dublin on Monday morning. The shares have fallen 14 percent over the last year.

Elan said that the agreement with Theravance, in which GlaxoSmithKline holds a stake, is part of a new strategy and that the company plans to “make further announcements regarding other assets and specific opportunities in the near future.”

Rick E. Winningham, Theravance’s chief executive, said that the agreement “complements our strategy to facilitate and accelerate the return of capital to our stockholders and build value.”

Theravance was advised by Centerview Partners on the transaction. Evercore Partners and Ondra Partners helped arrange the deal for Elan.