Elan Renews Spin-Off Hopes

| About: Elan Corporation, (ELN)

By Michael Fitzhugh

Elan (NYSE:ELN) is contemplating a spin-off of its drug delivery business, Elan Drug Technologies, in a bid to separate it from the company's successful biopharmaceutical business, it says. The notional split, announced April 19, would create two publicly traded companies, BioNeurology and Elan Drug Technologies, both of which would be operationally profitable. By announcing the idea, Elan says it hopes “to accurately assess the opportunity and impact on shareholder value.”

Although no timetable has been set for the review, the company expects to make a decision about whether to proceed “in the coming months.” The decision comes after the company tried to sell off Elan Drug Technologies in 2008, but found no buyers amid the global financial meltdown.

The Irish company has long been interested in finding ways to put more resources into its neuroscience-focused portfolio, which includes the blockbuster Tysabri for treating multiple sclerosis and Crohn's disease. In 2008 and again in 2009, the company cut staff to focus on its most promising programs.

Elan Drug Technologies' main revenue comes from manufacturing and royalties paid on products manufactured for clients products that incorporate Elan's technologies, such as Ampyra, a treatment to improve walking ability in patients with MS that the company makes for Acorda Therapeutics (NASDAQ:ACOR).

Shares of Elan rose briefly on April 19 as investors perhaps warmed to the idea of a spinoff, but fell sharply after UBS downgraded the company to sell from neutral, citing its own concerns about a potential “surge” among patients that receive 24 or more infusions of Tysabri in cases of progressive multifocal leukoencephalopathy, a rare disorder that damages the protective sheath that covers and protects nerves in the white matter of the brain.

In July 2009, Johnson & Johnson (NYSE:JNJ) swept in with $885 million to acquire rights to Elan's Alzheimer's program, forming a new J&J subsidiary in the process, Janssen Alzheimer Immunotherapy.