Investment firm Royalty Pharma is considering sweetening its $6.6 billion offer for Irish drugmaker Elan to pay Elan shareholders more if the multiple sclerosis drug Tysabri hits certain sales milestones, two people familiar with the matter said on Thursday.
Royalty made its indicative approach, worth $11 per Elan share, in February, hoping to add rights to royalty payments for Tysabri worth hundreds of millions of dollars.
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Elan sold its 50 percent stake in Tysabri to partner Biogen Idec in April but continues to receive royalty payments on sales of the drug.
Elan has rejected Royalty Pharma's proposal, calling it a "highly conditional indication of interest." An Irish takeover panel gave Royalty Pharma until May 10 to make a firm offer or walk away.
Now, Royalty Pharma is considering a formal offer at a slight premium along with a contingent value right, or CVR, whose value will depend on Tysabri sales, said the sources, who asked not to be named because the conversations were private.
Spokesmen for Elan and Royalty Pharma declined to comment.
Under the Biogen deal, Elan's royalty payments will be 12 percent of Tysabri sales in the first year, 18 percent after that, and 25 percent when annual sales rise above $2 billion. Sales of the drug rose 8 percent to $1.63 billion in 2012.
With a CVR, Royalty Pharma could offer Elan shareholders payouts if Tysabri passed certain sales milestones, according to the sources.
"It would allow Elan shareholders to gain more upside," one of the sources said.
On Friday, Elan will seek approval from shareholders to commence a $1 billion share buyback, announced in February after the Biogen offer was announced.
Royalty said in February that it reserved the right to reduce its indicative approach of $11 per share if Elan completed such a buyback.
Elan, which is determined to reinvent itself by using the cash from the Biogen deal in a series of acquisitions, has said it will give shareholders 20 percent of all future royalties from Tysabri.
(Reporting by Jessica Toonkel, Editing by Soyoung Kim, additional reporting by Padraic Halpin in Dublin; editing by John Wallace)