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Alkermes to merge with Elan Drug Technologies

May 9, 2011
by News release
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Waltham, Mass. & Dublin, Ireland — Alkermes, Inc. and Elan Corporation, plc, have announced the execution of a definitive agreement under which Alkermes will merge with Elan Drug Technologies (EDT), the profitable, world-class drug formulation and manufacturing business unit of Elan, in a cash and stock transaction currently valued at approximately $960 million.

Alkermes and EDT will be combined under a new holding company incorporated in Ireland. This newly created company will be named Alkermes plc.

The transaction is expected to be immediately accretive to cash earnings and accelerates Alkermes' path to building a sustainably profitable biopharmaceutical company with expertise in developing treatments for central nervous system (CNS) diseases and a broad, diversified portfolio of products and pipeline based on proprietary science and technologies.

Alkermes plc will have diverse revenue streams from 25 commercialized products, with future near-term growth expected to be driven by five major products: RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL and BYDUREON.

The combined company is expected to have growing product, royalty and manufacturing revenues in excess of $450 million annually and resources to prudently invest in an innovative pipeline of proprietary drugs.

"The merger will be financially transformative and create a profitable, global biopharmaceutical company with a diversified CNS product portfolio and a strong foundation for growth," stated Richard Pops, CEO of Alkermes.

"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. We're looking forward to working with the EDT team to accelerate growth and to create value for our shareholders and the patients we serve," Pops added.

Kelly Martin, CEO of Elan plc commented that "upon closing, this transaction aggressively advances a number of long-standing 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—overtime—from the equity position in Alkermes plc."

"The combination of Alkermes and EDT is a strong strategic fit at the right time when both businesses are strong and positioned for growth. With EDT's two recently approved drugs, INVEGA SUSTENNA and AMPYRA, driving revenue growth, the EDT business is an ideal complement to Alkermes' portfolio of approved and development-stage drugs," stated Shane Cooke, Executive Vice President and Head of EDT. "This combination creates opportunities for our employees and provides a platform for future growth."

Strategic and financial benefits of the transaction

According to a release, Alkermes plc will have the following strengths:


  • Immediate profitability on a cash earnings basis and diversified, growing revenues from 25 commercial products;
  • Robust revenue growth with expected Adjusted EBITDA1 margin expansion;
  • Five high-growth commercial products (RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL and BYDUREON), all with long patent lives and significant growth potential in large therapeutic areas. In particular, two of these products, RISPERDAL CONSTA and INVEGA SUSTENNA, both commercialized by Johnson & Johnson, represent two very important long-acting injectable atypical antipsychotic medications for schizophrenia and bipolar I disorder;
  • A strong, CNS-focused pipeline of proprietary and partnered product candidates in clinical development, including several late-stage proprietary product candidates;
  • Complementary new drug development capabilities that leverage proprietary science and innovative medicinal chemistry capabilities. Proprietary technologies include EDT's NanoCrystal technology for poorly water soluble drug compounds; EDT's proprietary technologies for oral controlled release drugs and Alkermes' long-acting injectable drug technologies; and
  • GMP manufacturing facilities in Wilmington, Ohio, Gainesville, Ga., and Athlone, Ireland, with world-class capabilities for producing complex drug products.
    Transaction Terms

In connection with the transaction, which was approved by the boards of Elan and Alkermes, at closing, Elan will receive $500 million in cash and 31.9 million ordinary shares of Alkermes plc common stock. Alkermes and Elan will enter into a shareholder agreement that, among other things, contains a lockup, standstill and voting agreement for Elan's shares of Alkermes plc.

Existing shareholders of Alkermes, Inc. will receive one ordinary share of Alkermes plc in exchange for each share of Alkermes, Inc. they own at the time of the merger. Alkermes plc shares will be registered in the U.S. and are expected to trade on the NASDAQ exchange. The transaction is expected to be taxable to existing Alkermes, Inc. shareholders. Alkermes has obtained a commitment from Morgan Stanley & Co. and HSBC to provide up to $450 million of term loans to finance the transaction.

Financial guidance

On a trailing 12-month basis as of March 31, 2011, the combined company would have had pro forma revenues of approximately $450 million and Adjusted EBITDA of approximately $80 million. On a pro forma basis, revenues are expected to grow in fiscal year 2012 and reach double digit growth rates in fiscal year 2013 and beyond. Pro forma Adjusted EBITDA margins for fiscal year 2012 are expected to be in the 15-20% range, yielding pro forma Adjusted EBITDA of between $70 million and $90 million.

Pro forma Adjusted EBITDA margins are expected to expand to 30-35% in fiscal year 2013 and beyond. While synergies are not the main driver of the transaction, approximately $20 million of annual synergies in U.S. operations have been identified and are expected to be fully realized by fiscal year 2013. Alkermes plc will be headquartered in Dublin, Ireland, creating a financially and legally efficient structure.

Leadership

Richard Pops, currently Chairman, President and Chief Executive Officer of Alkermes, will serve as Alkermes plc's Chairman and Chief Executive Officer, and Shane Cooke, currently Executive Vice President and Head of EDT, will join Alkermes plc as President. Alkermes plc's board will consist of members of the current board of Alkermes, Inc. Elan has the right to appoint one independent director to the board of Alkermes plc, contingent upon Elan's maintenance of at least 10% ownership in Alkermes plc.

Approvals

The transaction is subject to approval by Alkermes' stockholders and the satisfaction of customary closing conditions and regulatory approvals, including antitrust approvals in the U.S. The transaction is expected to close during the third quarter of calendar 2011.

Advisors

Alkermes' financial advisor is Morgan Stanley & Co. Incorporated, and its legal advisors are Cleary Gottlieb Steen & Hamilton LLP (New York) and Arthur Cox (Dublin). Elan's financial advisors for this transaction are Citigroup and Ondra Partners, and its legal advisors are Cahill Gordon & Reindel LLP (New York) and A&L Goodbody (Dublin).

Conference calls

Alkermes will host a conference call at 8:30 a.m. ET (1:30 p.m. BST) on Monday, May 9, 2011, to discuss this transaction. The conference call may be accessed by dialing 1-888-424-8151 for U.S. callers and 1-847-585-4422 for international callers. The conference call ID number is 6037988. In addition, a replay of the conference call will be available from 11:00 a.m. ET (4:00 p.m. BST) on Monday, May 9, 2011, through 5:00 p.m. ET (10:00 p.m. BST) on Monday, May 16, 2011, and may be accessed by visiting Alkermes' website or by dialing 1-888-843-7419 for U.S. callers and 1-630-652-3042 for international callers. The replay access code is 6037988.




Elan plc will host a conference call at 10:00 a.m. ET (3:00 p.m. BST) on Monday, May 9, 2011 to discuss this transaction. This event can be accessed by visiting Elan's website at

http://www.elan.com/ and clicking on the Investor Relations section, then on the event icon. Following the live webcast, an archived version of the call will be available at the same URL.


Because this transaction as to Elan is deemed a Class 2 transaction under the Listing Rules of the Irish Stock Exchange (ISE), Elan has issued a further regulatory announcement [via the RNS] containing certain additional prescribed disclosures relating to EDT and the transaction, detailing the proposed management changes in accordance with the requirements of the Listing Rules of the Irish Stock Exchange, and containing further information in connection with the transaction which is of relevance to Elan bondholders. This regulatory announcement will be filed with the U.S. Securities and Exchange Commission (SEC) on a Form 6-K, and will also be accessible on

http://www.elan.com/.


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